1. Which of the following is a key feature of term loans provided by banks?
A. They are repayable on demand
B. They are always unsecured in nature
C. They are generally repayable in installments over a fixed period
D. They do not require appraisal of project viability
Term loans are granted for long-term financing and are normally repayable in installments over a fixed period after appraisal of the project’s viability.
2. Which of the following factors is not considered while appraising a term loan?
A. Technical feasibility
B. Personal hobbies of the promoter
C. Financial viability
D. Economic viability
During term loan appraisal, banks evaluate technical feasibility, economic viability, and financial viability. Personal hobbies of promoters are irrelevant.
3. Deferred Payment Guarantees (DPGs) issued by banks are primarily used for which purpose?
A. To facilitate purchase of capital goods/equipment on deferred payment terms
B. To guarantee repayment of short-term working capital loans
C. To provide overdraft facility to exporters
D. To secure credit card dues of customers
DPGs are issued by banks to enable borrowers to purchase capital goods and equipment on deferred payment terms, assuring suppliers of payment.
4. In case of a Deferred Payment Guarantee (DPG), when does the bank make payment to the supplier?
A. Immediately on signing the contract
B. Only after full repayment by the borrower
C. Only if the borrower requests
D. On the due dates as per the deferred payment schedule, if the borrower defaults
Under DPGs, the bank guarantees payment to the supplier on due dates if the borrower fails to honor the deferred payment schedule.
5. Which of the following risks is most associated with term loans?
A. Liquidity risk
B. Credit risk
C. Operational risk
D. Market risk
The primary risk in term loans is credit risk, as repayment depends on the borrower’s long-term cash flows from the project.
6. Which of the following statements about term loans is correct?
A. They are given without security in most cases
B. Repayment period is always less than one year
C. They are usually secured by charge on fixed assets created out of loan
D. They are sanctioned only for working capital purposes
Term loans are typically secured by creating a charge (often mortgage or hypothecation) on the fixed assets financed by the bank.
7. What is the primary focus of a Term Loan Appraisal?
A. Country’s industrial policy and sectoral impact
B. Overall impact on economy
C. National infrastructure requirements
D. Repayment capacity and cash flows of the borrower
Term Loan Appraisal mainly concentrates on the borrower’s ability to repay from projected cash flows, repayment schedule, and security.
8. Project Appraisal differs from Term Loan Appraisal because it evaluates:
A. Technical feasibility, economic viability, and social desirability of the entire project
B. Only repayment schedule
C. Only credit history of the borrower
D. Only collateral offered
Project Appraisal is a holistic study that assesses technical feasibility, financial viability, and economic justification of the project as a whole.
9. Which of the following is not a part of Project Appraisal?
A. Market analysis
B. Technical feasibility
C. Checking personal preferences of the borrower
D. Financial analysis
Project Appraisal covers technical, financial, economic, and market aspects, but not personal lifestyle or preferences of the borrower.
10. In banking practice, which statement is correct regarding Term Loan Appraisal vs. Project Appraisal?
A. Term Loan Appraisal always precedes Project Appraisal
B. Project Appraisal is broader in scope, while Term Loan Appraisal is narrower and lender-focused
C. Both are exactly the same in scope
D. Term Loan Appraisal is done by government agencies only
Project Appraisal is comprehensive, considering viability from all angles, while Term Loan Appraisal is narrower and specifically checks borrower’s repayment ability and loan safety.
11. Which appraisal would include assessment of “social cost-benefit analysis”?
A. Project Appraisal
B. Term Loan Appraisal
C. Creditworthiness check only
D. None of the above
Project Appraisal may include social cost-benefit analysis (especially in infrastructure/large public projects), which goes beyond financial viability.
12. Term Loan Appraisal is generally conducted by ________, whereas Project Appraisal may also be done by ________.
A. RBI, SEBI
B. NBFCs, Stock Exchanges
C. Foreign lenders, Credit bureaus
D. Banks/financial institutions, government agencies or specialized project agencies
Term Loan Appraisal is typically done by banks or financial institutions lending money, while Project Appraisal can also be conducted by government or specialized project appraisal agencies (like DFIs).
13. Which of the following is the first step in Project Appraisal?
A. Financial viability study
B. Economic appraisal
C. Technical feasibility assessment
D. Sensitivity analysis
Project appraisal usually begins with technical feasibility to confirm that the project can be implemented as proposed, before moving to financial and economic viability.
14. Which type of analysis in Project Appraisal examines how changes in assumptions affect project outcomes?
A. Sensitivity analysis
B. Market analysis
C. Cost-benefit analysis
D. Risk-adjusted return analysis
Sensitivity analysis tests the robustness of a project by changing key assumptions (costs, revenues, interest rates) and analyzing the impact on viability.
15. In financial appraisal of a project, which metric indicates the present value of future cash flows compared to the initial investment?
A. Payback period
B. Net Present Value (NPV)
C. Debt service coverage ratio
D. Break-even point
Net Present Value (NPV) compares the present value of expected cash inflows with the initial investment, indicating whether the project adds value.
16. In Project Appraisal, which of the following ratios indicates the ability of a project to meet debt obligations?
A. Internal Rate of Return (IRR)
B. Break-even ratio
C. Net Profit Ratio
D. Debt Service Coverage Ratio (DSCR)
DSCR measures the ability of project cash flows to service debt obligations, making it a crucial parameter in project appraisal.
17. Which type of project appraisal includes evaluation of externalities like employment generation and regional development?
A. Economic appraisal
B. Financial appraisal
C. Technical appraisal
D. Market appraisal
Economic appraisal goes beyond financial return and evaluates social and economic benefits such as employment, regional growth, and externalities.
18. In project appraisal, “Break-even Analysis” is used to:
A. Compute IRR
B. Find NPV
C. Identify the level of sales at which no profit or loss occurs
D. Estimate payback period
Break-even analysis helps identify the minimum level of operations (sales or production) required to avoid losses.
19. Which of the following is a key characteristic of infrastructure projects?
A. Short payback period
B. Long gestation period and large capital requirement
C. Minimal impact on economy
D. Typically financed without debt
Infrastructure projects such as highways, power plants, and airports require huge capital, have long gestation periods, and significantly impact the economy.
20. Which financing model is commonly used in infrastructure projects?
A. Hire Purchase Model
B. Overdraft Facility
C. Cash Credit Limit
D. Public-Private Partnership (PPP)
Infrastructure projects are often financed under Public-Private Partnership (PPP) models where both government and private players share risks and investment.
21. Which of the following risks is most significant in financing infrastructure projects?
A. Price risk
B. Currency risk
C. Construction and completion risk
D. Documentation risk
One of the most critical risks in infrastructure project financing is construction/completion risk, as delays and cost overruns can significantly impact viability.
22. Which appraisal aspect is most crucial in infrastructure projects compared to normal industrial projects?
A. Revenue stream assessment and cash flow stability
B. Promoter’s hobbies
C. Security offered only
D. Working capital cycle
Since infrastructure projects involve long gestation and high debt, stability of revenue streams and projected cash flows is crucial for lenders.
23. Special Purpose Vehicles (SPVs) are commonly used in infrastructure financing because they:
A. Provide tax-free returns to investors
B. Isolate project risks from parent company’s balance sheet
C. Guarantee profits irrespective of project viability
D. Eliminate the need for equity funding
SPVs are created for specific infrastructure projects to ring-fence risks and keep them separate from the sponsoring company’s balance sheet.
24. Which of the following financial instruments is frequently used to fund infrastructure projects?
A. Savings bank deposits
B. Overdraft accounts
C. Agricultural KCC loans
D. Long-term bonds
Infrastructure projects are often financed through long-term bonds issued by institutions to match the long repayment schedules of such projects.
25. Caselet: A toll road project is financed through a Special Purpose Vehicle (SPV).
The project cost is ₹500 crore, with ₹350 crore debt and ₹150 crore equity.
The projected annual toll collection is ₹80 crore, and annual operating expenses are ₹20 crore.
Annual debt servicing (principal + interest) is ₹45 crore.
Question: What is the Debt Service Coverage Ratio (DSCR) of the project?
A. 1.20
B. 2.00
C. 1.33
D. 0.80
DSCR = Net Operating Income ÷ Debt Service.
Net Operating Income = Toll Collection – Operating Expenses = ₹80 crore – ₹20 crore = ₹60 crore.
Debt Service = ₹45 crore.
DSCR = 60 ÷ 45 = 1.33.
Hence, the DSCR is 1.33.
26. Caselet: An infrastructure project requires an initial investment of ₹200 crore and is expected to generate annual net cash inflows of ₹60 crore for 5 years. The discount rate is 10%.
Question: What is the Net Present Value (NPV) of the project (approx)?
A. ₹10 crore
B. ₹27 crore
C. ₹40 crore
D. ₹-15 crore
NPV = Present Value of Cash Inflows – Investment.
PV factor of annuity (5 years, 10%) ≈ 3.791.
PV of inflows = ₹60 × 3.791 = ₹227.46 crore.
NPV = ₹227.46 – ₹200 = ₹27.46 crore (approx).
Hence, the correct answer is ₹27 crore.
27. Caselet: An infrastructure project was initially estimated at ₹800 crore, financed with a Debt-Equity ratio of 2:1. Due to delays, the cost has risen to ₹1,000 crore. The lenders insist that the existing debt portion cannot be increased further.
Question: How much additional equity must the promoters bring in to finance the cost overrun?
A. ₹50 crore
B. ₹66.7 crore
C. ₹100 crore
D. ₹200 crore
Initial financing: 2:1 D/E ratio → Debt = ₹533.3 crore, Equity = ₹266.7 crore.
Revised cost = ₹1,000 crore. Debt remains same at ₹533.3 crore.
Balance ₹466.7 crore must come from equity.
Promoters had already brought ₹266.7 crore. Additional equity = ₹466.7 – ₹266.7 = ₹200 crore.
Hence, the answer is ₹200 crore.
28. Caselet: A power distribution PPP project is structured under a concession agreement where the private operator earns revenue from user charges. Demand turned out to be much lower than projected, leading to revenue shortfall. The government had provided a "minimum revenue guarantee" clause.
Question: Which risk mitigation mechanism is being applied here?
A. Government Support Agreement
B. Force Majeure Clause
C. Concession Period Extension
D. Viability Gap Funding (VGF)
A minimum revenue guarantee by government ensures that if actual collections fall below a threshold, the government covers the shortfall.
This is a form of Government Support Agreement to mitigate demand/revenue risk in PPP projects.
Hence, the correct answer is Government Support Agreement.
