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Financial & Economic Analysis Flashcards

7 cards from real CP3P practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Financial & Economic Analysis flashcards as text

  1. Which risk is typically better retained by the government because it is better placed to manage it?

    Answer: Changes in law that specifically target the project or PPP sector

    Discriminatory changes in law are within government control, so allocating them to the private partner would add risk premiums without improving VfM.

  2. How does indexation of availability payments to inflation affect the private partner's risk?

    Answer: It shields the private partner from rising costs, so less inflation risk premium is priced into the bid

    Indexing payments to inflation protects the private partner against rising operating costs, so the bid carries a lower risk premium.

  3. Lenders commonly use an interest rate swap in PPP financing to:

    Answer: Convert floating-rate debt to a fixed rate, stabilizing debt service costs

    Interest rate swaps fix the cost of floating-rate loans so long-term debt service is predictable.

  4. Under a demand-risk (user-pays) toll road PPP, which analysis is most critical to lenders?

    Answer: Traffic and revenue forecasting, including downside scenarios

    When revenues depend on usage, traffic forecasts and stress-tested downside cases drive debt sizing.

  5. What does the Economic Internal Rate of Return (EIRR) represent?

    Answer: The discount rate at which the project's net economic benefits to society have an NPV of zero

    EIRR is the discount rate that sets the NPV of a project's economic costs and benefits to society at zero.

  6. Lifecycle cost analysis in a PPP evaluates:

    Answer: Total cost of the asset over its life, including design, construction, operation, maintenance, and renewals

    Lifecycle costing covers all costs over the asset's life, which bundled PPP contracts give partners an incentive to optimize.

  7. Which statement about choosing the discount rate for a VfM comparison is most accurate?

    Answer: The rate chosen can materially change the outcome, so it should follow official government guidance and be applied consistently to the PSC and PPP cash flows

    Because PPP payments are spread over time while traditional costs are front-loaded, the discount rate strongly affects VfM results and must be applied consistently.