CP3P Financial & Economic Analysis 2

Question 1

In a PPP financial model, what does the Debt Service Coverage Ratio (DSCR) measure for a given period?

Accepted Answer

Cash flow available for debt service divided by scheduled debt service

Answer

DSCR compares cash flow available for debt service (CFADS) to principal and interest due in that period.

Question 2

Which ratio compares the NPV of CFADS over the remaining loan tenor to outstanding debt?

Accepted Answer

Loan Life Coverage Ratio

Answer

The LLCR discounts CFADS over the remaining loan life and divides it by the debt balance outstanding.

Question 3

A government compares a PPP bid against a hypothetical traditionally procured project adjusted for risk. What is that benchmark called?

Accepted Answer

Public Sector Comparator

Answer

The Public Sector Comparator estimates the risk-adjusted whole-life cost of delivering the project through conventional public procurement.

Question 4

Why does a PSC usually add 'competitive neutrality' adjustments?

Accepted Answer

To remove advantages or disadvantages the public sector has from public ownership, such as tax exemptions

Answer

Competitive neutrality adjustments put the public option on a like-for-like footing by offsetting ownership-related advantages such as tax exemptions.

Question 5

A sensitivity analysis shows the project's equity IRR falls below target if construction costs rise 8%. What is the main purpose of identifying this?

Accepted Answer

To determine which variables most threaten project viability

Answer

Sensitivity analysis identifies the key variables whose changes most affect financial outcomes.

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CP3P Financial & Economic Analysis 2