Free Certified Credit Research Analyst – Level 2 Exam CCRA-L2 Exam Practice Test

Scott is a credit analyst with one of the credit rating agencies in Indi

• He was looking in Oil and Gas Industry companies and has presented brief financials for following 4 entities:Giving equal weightage to all three ratios, determine which of the above entities should be rated highest on a relative scale.
• C Ltd
• A Ltd
• D Ltd
• B Ltd

Mark Construction Company (MCC) has bagged a contract for construction of a large dam and hydro power project on river Shiva in Madhya Pradesh (MP). The project is also of relevance from the irrigation perspective due to its location and as per the agreement MCC will have to undertake construction of web of canals, approach road to dam, power house and other ancillary units. MCC is promoted by Mr. Thomas Mark, who is a MP from the ruling party which recently formed government in MP. Historically, MCC has been engaged into construction of rural roads, small bridges and railway platforms on contract basis for the Government. MCC will have a separate specialpurpose vehicle (SPV) floated for this venture.The hydro power project comes under the public private partnership scheme of the Government of MP, where in the private partner builds owns operates and transfers (BOOT) the hydro power plant. The detailed terms of the hydro power project agreement are as follows:1. The construction of the dam, canals and hydro power plant shall be undertaken by the contractor. TheGovernment of MP will have to acquire land which will submerge on construction of dam and shall rehabilitate the owners of land.

• MCC shall have right to operate the hydro power project from date of commencement of commercial operations (DCCO) for a period of 20 years and shall transfer the project to Government thereafter. Further,SPV shall be tax exempt for a period of five years from DCCO i.e. FY17-FY21.
• The power project is of 600 megawatts (MW) shall comprise 4 units of 150 MW each. The estimated cost of project is about INR3, 500 Million to be spent over a period of 4 year(s) the project is estimated to be commercially operational by April 1, 2016 with two units operational om same day and one unit each will be operational on April 1, 2017 and April 1, 2018.
• Means of finance:Means of Finance INR MillionGovernment Aid (To be classified as Equity) 500Equity 900 Debt 2100
• Amount if expenditure estimated in various years is as follows:
• Debt shall bear a fixed rate of interest of 10% and all interest till DCCO shall be added to the principal. The expected principal along with capitalized interest is expected to be INR2, 400 Million (i.e.INR2100 Million debt plus INR300 Million capitalized interest). The repayment of the same shall be in 12 equated annual installments starting from FY17.
• Brief projections for the period of FY17 to FY21 are given below:
• Developments as on March 31, 2015
• The project manager for the SPV made following comments at a press conferee on March 31, 2015: As you all are aware, we were running bang on schedule till we last met on December 21, 2014. From today we are just left with one more year to complete the project in time. However, the flash floods which struck our dam site on this March 15, 2015 have created havoc in the region. I shall not point out the loss of lives in the region as you all are well aware of those. Our project has also been badly hit due to the same and we have been assessing the damage over the last one week. After analyzing damage, we have made changes in project schedule. Now we will be making only one unit of 150 MW operational on April 1, 2016 and 1 unit each will be added in each of subsequent year(s).
• Development as on September 30, 2015
• Post the flash floods, lot of environmentalists started raising issues of changes in environment due to construction of large number of dams. A few Public Interest Litigations (PILs) have been filed in various courts.
• Honorable High Court of MP on September 27, 2015, banned construction of any dams in the region and banned permissions for new dams till next hearing scheduled on November 30, 2015. MCC in its press release has indicated that they will apply to the higher court on the matter.
• Based on the initial projections, do scenario analysis assuming only 75% capacity is utilized in FY17 and FY18 and thereby revenues will be proportionally reduced.
• Compute DSCR under such scenario for FY17 and FY18, assuming other things remain constant?
• FY17: 0.85; FY18: 1.26
• FY17: 0.74; FY18: 1.09
• FY17:1.35; FY18: 2.09
• FY17:0.98; FY18: 1.46

During FY13, Small Bazar, a leading retail company has sold three of its prime properties for a sum of USD 24 Million. The same had a carrying value of USD 30 Million.Analyst had considered the same as operating income and considered it to be part of operating expenses.However, she realized her mistake and recorded the loss as non-operating loss. Which of the following ratio will not change despite the correction?

• EBITDA Margins
• Interest Coverage
• PAT Margins
• Gross Profit Margin
• B, C & D
• A, B & C
• B, C
• All Ratios will change

If XYZ Ltd. incurs (with purchase and installation of machinery) using cash, which of the following ratios will remain unchanged, if all other things remain constant?

• None of the three
• Asset Turnover ratio
• Current Ratio
• Quick Ratio

If you yield curve is humped and the medium rates drop, what will happen to the yield curve?

• It will move from negative to positive
• It will shift up in a uniform fashion
• It will become steeper
• It will flatten

Which of the following is false in case of credit enhancements?

• It reduces the default risk of the borrowing entity for the lender, thereby deteriorating the overall credit worthiness of the borrower
• Credit enhancement could be implicit or explicit
• Credit enhancement is a mechanism whereby external cash flows is extended by an entity which has a stringer credit profile, so that it benefits the fund raising entity

Z spreads in Callable bonds include:

• Does not include premium for credit risk and call option price for prepayment risk.
• Premium for credit risk and call option price for prepayment risk in included.
• Premium for credit risk is only included.
• Premium for call option price for prepayment risk os only included.

The longer the term to maturity of bond:

• term to maturity and price of a bond are not related
• The lesser is the risk associated with price of a bond
• The higher is the return from the bond
• The more risk in the price of a bond

Which of the following may lead to the deterioration in credit profile of a bank?Statement 1. Bank’s Capital adequacy falling below regulatory requirement. Statement 2. Rise in Slippage ratio

• None of the statement is correct
• Both statement 1 and 2 are correct
• Statement 1 is correct
• Statement 2 is correct

Mark Construction Company (MCC) has bagged a contract for construction of a large dam and hydropower project on river Shivna in Madhya Pradesh (MP). The project is also of relevance from the irrigation perspective due to its location and as per the agreement MCC will have to undertake construction of web of canals, approach road to dam, power house and other ancillary units. MCC is promoted by Mr. Thomas Mark, who is a MP from the ruling party which recently formed government in MP. Historically, MCC has been engaged into construction of rural roads, small bridges and railway platforms on contract basis for the Government. MCC will have a separate special purpose vehicle (SPV) floated for this venture.The hydro power project comes under the public private partnership scheme of the Government of MP, where in the private partner builds owns operates and transfers (BOOT) the hydro power plant. The detailed terms of the hydro power project agreement are as follows:

• The construction of the dam, canals and hydro power plant shall be undertaken by the contractor. TheGovernment of MP will have to acquire land which will submerge on construction of dam and shall rehabilitate the owners of land.
• MCC shall have right to operate the hydro power project from date of commencement of commercial operations (DCCO) for a period of 20 years and shall transfer the project to Government thereafter. Further,SPV shall be tax exempt for a period of five years from DCCO i.e. FY17-FY21.
• The power project is of 600 megawatts (MW) shall comprise 4 units of 150 MW each. The estimated cost of project is about INR3, 500 Million to be spent over a period of 4 year(s) the project is estimated to be commercially operational by April 1, 2016 with two units operational om same day and one unit each will be operational on April 1, 2017 and April 1, 2018.
• Means of finance:Means of Finance INR MillionGovernment Aid (To be classified as Equity) 500Equity 900 Debt 2100
• Amount if expenditure estimated in various years is as follows:
• Debt shall bear a fixed rate of interest of 10% and all interest till DCCO shall be added to the principal. The expected principal along with capitalized interest is expected to be INR2, 400 Million (i.e.INR2100 Million debtplus INR300 Million capitalized interest). The repayment of the same shall be in 12 equated annual installments starting from FY17.
• Brief projections for the period of FY17 to FY21 are given below:
• Developments as on March 31, 2015
• The project manager for the SPV made following comments at a press conferee on March 31, 2015:
• As you all are aware, we were running bang on schedule till we last met on December 21, 2014. From today we are just left with one more year to complete the project in time. However, the flash floods which struck our dam site on this March 15, 2015 have created havoc in the region. I shall not point out the loss of lives in the region as you all are well aware of those. Our project has also been badly hit due to the same and we have been assessing the damage over the last one week. After analyzing damage, we have made changes in project schedule. Now we will be making only one unit of 150 MW operational on April 1, 2016 and 1 unit each will be added in each of subsequent year(s).
• Development as on September 30, 2015
• Post the flash floods, lot of environmentalists started raising issues of changes in environment due to construction of large number of dams. A few Public Interest Litigations (PILs) have been filed in various courts.
• Honorable High Court of MP on September 27, 2015, banned construction of any dams in the region and banned permissions for new dams till next hearing scheduled on November 30, 2015. MCC in its press release has indicated that they will apply to the higher court on the matter.
• As a credit rating analyst on September 30, 2015, on receipt of the high court order, what rating action you will take:
• Put ratings on rating watch.
• Change rating outlook for long term to negative.
• No action, wait for order if higher courts or hearing on November 30, 2015.
• Immediately downgrade ratings of SPV.