CP3P Financial & Economic Analysis 3

Question 1

Which factor typically makes a PPP's weighted average cost of capital higher than government borrowing costs?

Accepted Answer

Private financing includes risk premiums for equity and project-level debt

Answer

Private capital prices project risk into debt margins and equity returns, so it usually costs more than sovereign debt.

Question 2

Value for Money in a PPP can still be achieved despite higher financing costs mainly because of:

Accepted Answer

Efficient risk transfer, lifecycle optimization, and innovation offsetting the financing premium

Answer

VfM rests on whole-life efficiencies and better-priced risk transfer outweighing the higher cost of private finance.

Question 3

A contingent liability for government in a PPP most commonly arises from:

Accepted Answer

Guarantees such as minimum revenue or debt guarantees that are triggered only by future events

Answer

Contingent liabilities are obligations triggered only if uncertain events occur, such as guarantee calls or termination payments.

Question 4

In a Monte Carlo risk analysis for a PSC, what is the output most commonly used to price retained risk?

Accepted Answer

A probability distribution of costs from which expected values or P-values (e.g., P50, P90) are taken

Answer

Monte Carlo simulation produces a distribution of outcomes, and expected values or percentile values are then used to quantify risk.

Question 5

Optimism bias adjustments in a project appraisal are intended to:

Accepted Answer

Correct the systematic tendency to underestimate costs and durations

Answer

Optimism bias uplifts correct for the documented tendency of appraisers to underestimate capital costs, durations, and overestimate benefits.

CP3P - Public-Private Partnership Certification Practice Test