MULTIPLE CHOICE SINGLE CORRECT ITEM TEMPLATE

Input Language English

Course Name : Project and Infrastructure Finance
Item Bank ID

No. of
Difficulty Level Author Options Item Text
(Low-1,Medium- (4 Only)
2,High -3)
What is the tenure of the predetermined concession period in
2 4
a Toll Operate Transfer model?
What is the decision criteria for profitability index (PI) to
1 4
reject a project?
4 Symbiosis
IIPDF was signed a new
setup with anproperty for anof:
initial corpus annual lease
1
payment of $25000 for a period of 3 years. The market
3 4 discount rate is 15%. What is the closing value of lease
Which of
liability at the following
end of yearMS
2 ifExcel function
the lease allows
is treated asyou to
a finance
1 4 model reinvestment
lease from of cash flows at a rate different than
a lessee perspective?
IRR?
Which of the following entities provides bankruptcy
3 4
protection to parent entity?
Following cash flow sequence is known as: - + + - + + + - +
3 4
---+++
If the payoffs in a real option scenario can be truncated the
2 4
method that should be used to estimate the option value is:
2 4 Which of them cannot be a project sponsor?
Project A NPV is $1000 and IRR is 15%. Project B NPV is
3 4 $500
Whatand IRR
is the NPVis 18%.
of theWhich project
project should
(in Rs.) with be selected
a 3-year life and
given there is conflict between NPV and IRR?
a cost of Rs.32000 and a working capital requirement of Rs.
2 4
2500 generates cash flows of Rs.8000 in year 1 Rs.12000 in
4 year 2 and
Which Rs.17000
of the in year
following 3. Discount
agreement raterevenue
reduces is 5%. risk?
3
The NPV of a project with a 3-year life is $14079.64. The
3 4
cost of capital is 10.0%. What is the EAA payment?
Which of the following delivers the project site to the private
2 4
developer?
If the profitability index for a project is 0.90 and the
3 4 investment in the project is 11111 what is the present value
of cash inflows?
3 4 Take or Pay contract is a type of:

1 4 EPC
Whatcontract:
is the NPV of the project (in Rs.) with a 3 year life and
a cost of Rs.32000 generates cash flows of Rs.8000 in year 1
2 4
Rs.12000 in year 2 and Rs.17000 in year 3. Discount rate is
4 5%.
Which of them is an example of an offtake agreement?
2
The contractor is contractually obliged to return to the
3 4 construction site to repair defects that have appeared in the
Which agreement
contractor’s work. specifies bonusas:
This is known payments to the contractor
3 4 for exceeding predetermined performance parameters and
penalties for underachievement.
1 4 Project Financing is appropriate for which kind of projects?
 What is the payback period (in years) for a project that costs
Rs. 120000 and would yield after-tax cash flows of Rs.
3 4 20000 the 1st year Rs. 22000 the second year Rs. 25000 the
third
Whatyear Rs.following
is the 27000 theis fourth year Rs. 31000
not a disadvantage of the fifth year
payback
1 4 and Rs. 37000 the sixth year.
period?
The down-factor value in a Binomial is 1.9. What is the
3 4
value of the up factor?
2 4 Which of the following relationship is valid?

1 4 Interest during construction period is:

2 4 Under the VGF up to 20% of the total ________ is provided.

2 4 Which of them is not an objective of VGF?

In case a project seeks assistance under the IIPDF the
3 4
contribution from the IIPDF and Sponsoring Authority are:
3 4 Under the fourth tranche of Covid-19 financial package the Government will enha

2 4 Pipavav Railway Corporation Limited is a:

2 4 TOT models are applicable to:

1 4 Under HAM projects NHAI releases what percent of total project cost?

3 4 BOT projects started seeing lower interest from private players due to:

2 4 A TOT Project with a 3-year life has following cash inflows: Year 1 - $5000 Year

2 4 HAM is a mix of:

2 4 Abandonment options are similar to:

2 4 Investing in creating a new manufacturing facility to manufacture 100 Litre SKUs o

1 4 Estimate the overall NPV if the project NPV is negative $50 million option cost is
4 Calculate the option value in a risk neutral framework given the following data:
1 -The Risk
adjustment
neutral for risk is in=the
probability 35%numerator in:
4 - Risk free rate = 3%
2 -Estimate thecapital
Cost of overall= NPV
15% if the project NPV is $150 million option cost is $100 mil
-Calculate
Upsidethe
payoff
option= $500
value in a risk neutral framework given the following data:
2 4 -- Downside payoff = $100= 65%
Risk neutral probability
4 - Risk free rate = 5%
1 -Guanzhau
Cost ofCorp. has= a12%
capital contract to build a building for $100000 with an estimated
- Upside payoff = $1500
3 4 - Downside payoff = $0

1 4 The NPV of a project with a 6-year life is $11776.3. The cost of capital is 10.0%.

2 4 As per the scheme for financial support to PPPs in infrastructure a tripartite agr

1 4 A BOT Project with a 2-year life has following cash inflows: Year 1 - $5000 Year

2 4 Land Acquisition is the responsibility of the:

 Mitul is considering bidding for two mutually exclusive projects: Project A with a 3-yea
- Investment needed for both projects is $15,000
- Cost of capital is 19%
- Cash inflows for Project A – Year 1 to Year 3 are $10,000 per year
- Cash inflows for Project B – Year 1 to Year 9 are $5,000 per year
- Project B is a recurring project and can be extended for another 9-years
3 4 - Project A does not offer any extension and is one-time project

1 4 Estimate the expected cash flows if there is 70% probability of success and a 30% p

2 4 The adjustment for risk is in the denominator in all of the following except:

3 4 The probabilities in a risk-averse world are called:

3 4 What is the present value of expected cash flows in a Binomial model with follo

1 4 The up-factor value in a Binomial is 1.2. What is the value of the down factor?

3 4 The Government of India provides total Viability Gap Funding normally in the form

3 4 Which of the following is included under the VGF funding pursuant to a notifica

1 4 The private sector company that is selected for PPP projects eligible for a VGF is

1 4 Financing cost should be:

1 4 Non-Conventional Cash Flows in capital budgeting may lead to everything except:

1 4 Which of them is related to study of demand for a project?

3 4 IPP stands for:

3 4 Which of them is related to study of environmental issues related to a project?

2 4 Fixed Time Fixed Price contracts are signed between:

1 4 McLaren F1 team wants to switch to soft set of tyres for their drivers. However t

3 4 What is the profitability index given the total present value of cash inflows is $1

1 4 Which agreement may require the government to construct supporting facilities su

1 4 Airport facilities are developed using which of the following model:

1 4 Sun Corp. is taking an oil rig on lease for an annual payment of 18000 for a period

1 4 Concession period starts once:

2 4 VGF Scheme was launched in:

1 4 In which of the following project estimation of cash flows will be a relatively diffic

2 4 Sunk costs are:

3 4 Which function should be used in MS Excel to evaluate a project which has non-p

1 4 IIPDF stands for:

1 4 All of the following influence capital budgeting decisions except:

2 4 Liquidation damages are generally capped at:

1 4 The risk on account of COVID-19 to a project is known as:

2 4 Intercreditor agreement is signed between:

2 4 Earnest money refers to the:

1 4 IPP can sell power by:

1 4 TOT model was approved by CCEA in:

2 4 Which of the following is not a phase of financial closure?

2 4 Guanzhau Corp. has a contract to build a building for $100000 with an estimated

1 4 Un-levering of levered equity beta results in removal of:

1 4 Cannibalization is an example of:

3 4 Option to use different raw materials in a production process is a type of:

1 4 Exercise price in a Black-Scholes model is equivalent to ___________ in a Binomi

1 4 India Infrastructure Finance Company does not offer:

1 4 Monitoring of projects under project finance are done by:

Item Image Option Text 1 Option Text 2 Option Text 3 Option Text 4 Correct Option

30 years 20 years 25 years 15 years 1

PI > 1 PI < 1 PI = 1 PI = 0 2

Rs. 100 Crore Rs. 50 Crore Rs. 1000 Crore Rs. 500 Crore 1

40643 21739 57080 25000 2

IRR XIRR MIRR NPV 3

O&M
SPV Sponsor Contractor 1
Non- Contractor
Conventional Regular cash Incremental
Conventional 2
Cash Flows flows Cash Flows
Binomial Cash Flows
Discounted Risk neutral Black Scholes
3
method value method valuation Method
Domestic Foreign
Government Bank 4
company multinational
Reject both
Project A Project B Both 1
projects
848.23 3348.23 -1311.36 1118.64 1
Shareholder Offtake Concession Financing
2
agreement agreement agreement agreement
$5661.6 $4560.8 $5830.9 $4925.8 1
Fixes the
Shareholderof
responsibility Offtake Concession Financing
3
theagreement
contractor to agreement agreement agreement
rectify1111
the plant Helps
9000the Defines
10000 12345 3
if it fails to meet banker in clearly maintenance
Shareholder
guaranteed Offtake
resolving Power Purchase
obligations that Financing
Details the 3
agreement
performance agreement
disputes Agreement
will ensure that agreement
equity and debt
parameters and between the project or 1
needed to fund a
penalties or shareholders the facility is
1181.64 1818.64 1188.64 as project.
1118.64 3
liquidation once the SPV maintained
damages if the starts
Fuel supply O&Mgetting per the Purchase
Power industry Financing
plant fails to profits. best practices. 3
agreement Agreement Agreement
Maintenance agreement
Defectsmeetliability Liquidation
performance obligation Update period 1
period damages
parameters. Shareholder period Security
O&M Contract EPC Contract 1
Agreement Agreement
Capital Retirement
Labor intensive Office Party 2
intensive scheme
 4.75 4.08 4.56cash
Ignores 4.84 4
Ignores cash Ignores
Ignores time flows beyond
flows beyond incremental 1
value of money the payback
the first year cash flows
1.9 0.53 period
0.1 0.9 2
Payback period Payback period Payback period No relationship
< Discounted = Discounted > Discounted between the two 3
payback period payback period payback period variables
Capitalized Prioritizing
ExpensedPPP Not Developing
calculated Ignored 1
Mobilizing projects to
Operation and projects through Managing the
additional improve the Procurement
an inclusive projects to avoid
Project Cost Maintenance Wages 1
finance to meet efficiency of Cost that cost over-runs
approach
Cost
India’s service delivery does not neglect or delays on 4
infrastructure
75% and 25% control
25% and timing
75% geographically
20% and 80% account80% and of 20%
poor
needs more and cost and or economically execution 1
respectively respectively respectively respectivelythe
of
rapidly. attract private disadvantaged project.
e the Government will enha 0.3 sector expertise.
0.25 regions. 0.35 0.2 1

BOO Project BOT Project TOT Project DBFO Project 1

Water Filter Proje Sanitation Project Road Projects Dam Projects 3

tal project cost? 0.4 0.5 0.3 0.2 1

e players due to: Unavailability of Lower IRR Commercially unviToo much competi 1

ows: Year 1 - $5000 Year $24658 $23582 $26058 $25159 1

EPC + BOT O&M + BOT EPC + BOO BOT + Design 1

Call Options Put Options Swaps Forwards 2

anufacture 100 Litre SKUs oExpansion Option Timing Option Fundamental OptiGrowth Option 1

$50 million option cost is $70 million $90 million $120 million $190 million 1
given the following data:
Certainty Equival Binomial Model NPV Method IRR Method 1

lion option cost is $100 mil $70 million $90 million $150 million $190 million 3
given the following data:
$233 $240 $209 $200 1

100000 with an estimated $16000 and $0 $0 and $13333 $0 and $0 $16000 and $133 3

$975 $929 $900 $750 2

e cost of capital is 10.0%. $2650 $2704 $2592 $2814 2

astructure a tripartite agr Empowered InstituEmpowered Committ

Empowered InstituEmpowered Committ 1

ows: Year 1 - $5000 Year $7051 $7180 $5132 $2810 1

EPC Contractor Concession AuthorLender O&M Contractor 2

 projects: Project A with a 3-year life and Project B with a 9-year life. He has spent several hours reading the project details and has follow

0,000 per year

,000 per year
d for another 9-years
time project EAA LCM IRR NPV 1

bility of success and a 30% p$1140 $1050 $90 $1400 1

he following except: Discounted Payba NPV Method IRR Method Risk neutral valuat 4

True probabilities Risk neutral probab

Weighted probabiliJoint Probabilities 1

Binomial model with follo 604 525 435 505 1

lue of the down factor? 1.1 0.83 0.9 0.8 2

unding normally in the formCommercializatio Construction Feasibility analysis Technical analysis 2

ng pursuant to a notifica Medical college Bridges Oil and Gas storag LPG Pipeline 1

ojects eligible for a VGF is Fixed Time Fixed PFirst Come First S Request For PropoCompetitive Biddi 4

Considered as partIgnored for cash f Depends on case bConsidered as sunk 2

y lead to everything except: Multiple IRR No IRR Decision conflict Multiple NPV figur 4

Technical analysis Financial analysis Market analysis Ecological analysis 3

Infrastructure Pr Infrastructure P Infrastructure Po Infrastructure Po 3

ues related to a project? Technical analysis Financial analysis Market analysis Ecological analysis 4

Sponsor and EPC Sponsor and O&M Sponsor and Fuel Sponsor and Bank 1

or their drivers. However t Expansion option Fundamental opti Timing option Growth Option 3

alue of cash inflows is $1 0.8 1.25 0.2 0.67 2

struct supporting facilities suEPC Agreement O&M Agreement Concession Agree Offtake Agreemen 3

wing model: Lease-Develop-Op Design-Build-Fina Build-Own-Operat Build-Operate-Tra 1

ment of 18000 for a period 44763 and 16363 44763 and 31240 30590 and 16363 30590 and 31240 2

Financial closure EPC contractor is Based on a date s Based on a date s 1

2005 2006 2007 2008 1

ws will be a relatively diffic Expanding the prodSetting up a new fExpansion of the dExpansion of Jamna 2

Ignored in capital Included in cash f Depends on case bIncluded in cost of 1

a project which has non-p IRR NPV XNPV MIRR 3

India Infrastruct India Infrastructu Infrastructure Ini India Initiative 1

Incremental cash Externalities Sunk cost Working capital 3

 0.3 0.1 0.2 0.25 3

Regulatory Risk Force Majeure Ris Technology Risk Political Risk 2

Sponsor and all le All lenders includ Suppliers and SpoShareholders 2

Security deposit Upfront payment Fees paid to the bTransaction fee pa 1

Signing PPA Merchant Sales E-commerce sales Both a and b 4

2005 2016 2012 2010 2

Finalization of so Release of funds Signing loan agre Signing the EPC C 4

100000 with an estimated $16000 and $140 $16000 and $133 $13333 and $140 $16333 and $140 2

Financial risk fro Operational risk f Profit risk Sales risk 1

Positive externalit Negative externaliIncremental cash fSponsored project 2

rocess is a type of: Fundamental opti Expansion option Flexibility option Growth Option 3

___________ in a Binomi Expected Cash Fl Investment Cost of Capital Risk free rate 2

Direct lending Credit enhanceme Refinance schemeEPC Services 4

Third party Internally by the p EPC contractor O&M Contractor 1

 CO Q.NO.
(1,2,3,4,5)

3 1

1 2

5 3

4 4

3 5

4 6

2 7

4 8

2 9

3 10

5 11

4 12

5 13

1 14

2 15

3 16

2 17

3 18

1 19

4 20

4 21

3 22
3 23

5 24

4 25

1 26

2 27

2 28

3 29

4 30

4 31

1 32

1 33

2 34

5 35

3 36

5 37

3 38

1 39

5 40

4 41

1 42

1 43

4 44

4 45

5 46

5 47

5 48

2 49
1 50

1 51

5 52

1 53

1 54

1 55

5 56

1 57

4 58

3 59

3 60

2 61

3 62

5 63

2 64

2 65

3 66

4 67

2 68

2 69

5 70

3 71

2 72

1 73

3 74

3 75

5 76
4 77

3 78

1 79

5 80

5 81

2 82

3 83

1 84

4 85

4 86

4 87

2 88

5 89

2 90
Input Language English

Course Name : Project and Infrastructure Finance

Item Bank ID

Difficulty Level (Low- Six Questions :

1,Medium-2,High -3) Author (students can attemp any two questions for 12 Marks)

Discuss land acquisition risk and political risk associated

with any project in brief.

Discuss in brief about “Sponsors” and types of sponsors

in project finance.

2
 Discuss the HAM model in detail.

What are the advantages of a PPP model?

Discuss off-take agreements and EPC agreements in

brief.

2
 Adani Ports has implement a port project which has the
following data: (8 Marks)
• Equity Beta = 1.5
• Tax Rate = 40.0%
• Debt = 25%
• Equity = 75%

Reliance Industries plans to setup a similar project.

Estimate the beta for this project using pure play
method. The details of this project are as follows:

• Tax Rate = 30.0%

• Debt = 15%
• Equity = 85%
3
 Model Answer

Land Acquisition Risk

• Minimum land acquisition stipulated as a pre-disbursement clause
• Projects in sensitive states avoided
• Land acquisition is the responsibility of Concession Authority
• Compensation is paid by the authority on account of any adverse delay
Political Risk
• Policy Risk: Change in policies towards infrastructure like tax sops, concession agreements, grant policies
• Revenue/Toll Rate Risk: Change in toll rates
• Regime Change Risk
• Change in Applicable Laws / Tax Laws
• Cross Border Governing Law Enforcement Risk
• Concession Agreements / Licenses govern all aspects of projects under a contract-based system and governments
signed contracts

• Sponsors are usually the equity share capital holders of the parent company who wish to seek project finance.
• Two or more entities may also join hands to float an SPV.
• Instances of this phenomenon occur when two organizations create synergy for one another or are likely to mutua
from the underlying SPV.
• They are the equity providers of the SPV. Before floating an SPV, they must obtain authorization from the shareh
parent company via a shareholder’s agreement (SHA).
In brief, four types of sponsors are often involved in such transactions:
• Industrial sponsors – They see the initiative as upstream and downstream integrated or in some way as linked to t
business
• Public sponsors – Central or local government, municipalities and municipalized companies whose aims center o
welfare
• Contractor/sponsors – Who develop, build, or run plants and are interested in participating in the initiative by pro
and or subordinated debt
• Financial sponsors/investors – Plays part of a project finance initiative with a motive to invest capital in high prof
They have high propensity of risk and seek substantial return on investments
• A mix of the EPC (engineering, procurement and construction) and BOT (build, operate, transfer) models.
• Under the EPC model, NHAI pays private players to lay roads. The private player has no role in the road’s owner
collection or maintenance (it is taken care of by the government).
• Under the BOT model though, private players have an active role — they build, operate and maintain the road fo
number of years — say 10-15 years — before transferring the asset back to the government.
• Under BOT, the private player arranged all the finances for the project, while collecting toll revenue or annuity fe
Government, as agreed.
• The annuity fee arrangement is known as BOT-Annuity; essentially, the toll revenue risk is taken by the governm
the private player is paid a pre-fixed annuity for construction and maintenance of roads.
• HAM combines EPC (40 per cent) and BOT-Annuity (60 per cent).
• On behalf of the government, NHAI releases 40 per cent of the total project cost. It is given in five tranches linke
milestones.
• The balance 60 per cent is arranged by the developer. Here, the developer usually invests not more than 20-25 pe
project cost (as against 40 percent or more before), while the remaining is raised as debt.

• Access to private sector finance

• Efficiency advantages from using private sector skills and from transferring risk to the private sector
• Potentially increased transparency
• Enlargement of focus from only creating an asset to delivery of a service, including maintenance of the infrastruc
during its operating lifetime
• This broadened focus creates incentives to reduce the full life-cycle costs (ie, construction costs and operating co

Off-Take Agreement
When there are only a few potential customers for the project’s output, revenue risk is likely to be transferred to those
by means of a long-term sales contract.

Contracts may include take-or-pay clause, minimum throughput agreement, tolling contract etc. The risk of payments
through a proper payment security mechanism.

EPC Agreement
The risk of project construction is mitigated to the construction contractors by entering into a fixed time fixed price co
them and the contract adequately providing for liquidated damages (penalties) in case of delay in construction.
Unlevered Beta = 1.5 / (1+(1-40%)*(25%/75%)) = 1.25
Relevered Beta or Project Beta = 1.25 * (1+ (1-30%)*(15%/85%)) = 1.40
Questions CO
Marks (1,2,3,4,5) Q.NO.

6 1,2 1

6 3,4 2
6 2,3,4 3

6 1,3 4

6 2,4 5
6 1,3,4 6