i. 11. Question One (1) Discuss the statement there is a trade-off between attractive environment and economic growth. Support your response with a graph. How would the firm's environmental management decision in the areas of product management, operations, capital assets and financing build up into shareholder value creation? Suppose the potential benefits of a project are growing with calendar time, for example the volume of traffic that would use a bridge. In such a situation is the right time to start the project also the time when the internal rate of return for the project is maximized? The present value of the investment cost of a project that is completed at the beginning of year 0 is 1000. If the costs stay at the same level (in real present value terms no matter when the project is completed) while the real net benefits grow over time according to the following schedule: iv. Year 2 3 4 5 Net benefits 50 70 90 120 150 The opportunity cost of alternative investments r is 10%. Page 1 of 3 a. What year would you recommend starting the project? b. If the present value of the investment cost increases by 20 each year beginning in year 1, what year would you recommend completing the investment phase of the project? Differentiate between environmental risk control and environmental risk transfer. v. i. i. ili. Question Two (2) The accounting systems that grew up alongside the industrial revolution concentrated on the simplest financial indicators; revenues, costs, and the balance sheet. Does this statement sit well with you? Explain your response to this statement. AIBMAG, a country with an expanding demand for electricity services, is considering a major expansion of its rural electrical system. It is also expected that the cost of lines, transformers, and other capital equipment will increase over time. Explain what criterion should be used to decide if and when the project should be undertaken. Explain what the annual debt service coverage ratio (ADSCR) and loan life coverage ratio (LLCR) are. How are these estimated and what are the differences between them? What will you do if the ADSCR are less than one in year 9 and 10 of the 20 years project? Ghana is considering building a new airport. It is planning to appraise the investment in the airport as a separate project from the road, railroad and bus services that are expected to be developed to serve the airport. Explain why you either agree or disagree with this approach for the appraisal of these expenditures. How can the banking industry affect the environment through the direct impacts of its internal operations and business processes? iv. V. 2 marrabi i. Question Three (3) How might a firm that wishes to achieve certain environmental standards chart its path? Explain what the annual debt service capacity ratio (ADSCR) is, and debt service coverage ratio (DSCR). How are they estimated? What can you infer from such ratios? ii. Page 2 of 3 111. Suppose the loan life coverage ratio, LLCR, is satisfactory for entire period that the debt used to finance a project is outstanding. Then it must be the case that each of the annual debt service coverage ratios, ADSCR, during this period must also be satisfactory. Do you agree with this statement? Explain. Comment on the following Kyoto Protocol flexible mechanisms Emission Trading b. Clean Development Mechanism Joint Implementation iv. a. c. V. Differentiate between Environmental Risk and Catastrophic risk. Discuss the impact of the two risk on the insurers and insured. i. . Question Four (4) How might environmental Finance prepare the current generation for the challenges ahead? How might a person that is arranging the financing of a project change the structure of the financing to improve the annual debt service coverage ratios for the project? Suppose the net present value of a project is positive for a project that has a life of 25 years. The project is financed with a 10-year loan at a 12% interest rate and covering 80% of the cost of the project. It is found that the annual debt service capacity ratios for the first 4 years are all less than one. What do you suggest could be changed to the structure of the financing of the project that might be improving the annual debt service capacity ratios of the project? iii. iv. Differentiate between Carbon Tax and the Cap and Trade concept of reducing carbon emission. In addition, list and explain the macro and micro drivers of carbon price on the Carbon Market. V. Discuss how the insurance industry will use disaster bond and weather derivative to transfer risk to the capital market i. 11. Question One (1) Discuss the statement there is a trade-off between attractive environment and economic growth. Support your response with a graph. How would the firm's environmental management decision in the areas of product management, operations, capital assets and financing build up into shareholder value creation? Suppose the potential benefits of a project are growing with calendar time, for example the volume of traffic that would use a bridge. In such a situation is the right time to start the project also the time when the internal rate of return for the project is maximized? The present value of the investment cost of a project that is completed at the beginning of year 0 is 1000. If the costs stay at the same level (in real present value terms no matter when the project is completed) while the real net benefits grow over time according to the following schedule: iv. Year 2 3 4 5 Net benefits 50 70 90 120 150 The opportunity cost of alternative investments r is 10%. Page 1 of 3 a. What year would you recommend starting the project? b. If the present value of the investment cost increases by 20 each year beginning in year 1, what year would you recommend completing the investment phase of the project? Differentiate between environmental risk control and environmental risk transfer. v. i. i. ili. Question Two (2) The accounting systems that grew up alongside the industrial revolution concentrated on the simplest financial indicators; revenues, costs, and the balance sheet. Does this statement sit well with you? Explain your response to this statement. AIBMAG, a country with an expanding demand for electricity services, is considering a major expansion of its rural electrical system. It is also expected that the cost of lines, transformers, and other capital equipment will increase over time. Explain what criterion should be used to decide if and when the project should be undertaken. Explain what the annual debt service coverage ratio (ADSCR) and loan life coverage ratio (LLCR) are. How are these estimated and what are the differences between them? What will you do if the ADSCR are less than one in year 9 and 10 of the 20 years project? Ghana is considering building a new airport. It is planning to appraise the investment in the airport as a separate project from the road, railroad and bus services that are expected to be developed to serve the airport. Explain why you either agree or disagree with this approach for the appraisal of these expenditures. How can the banking industry affect the environment through the direct impacts of its internal operations and business processes? iv. V. 2 marrabi i. Question Three (3) How might a firm that wishes to achieve certain environmental standards chart its path? Explain what the annual debt service capacity ratio (ADSCR) is, and debt service coverage ratio (DSCR). How are they estimated? What can you infer from such ratios? ii. Page 2 of 3 111. Suppose the loan life coverage ratio, LLCR, is satisfactory for entire period that the debt used to finance a project is outstanding. Then it must be the case that each of the annual debt service coverage ratios, ADSCR, during this period must also be satisfactory. Do you agree with this statement? Explain. Comment on the following Kyoto Protocol flexible mechanisms Emission Trading b. Clean Development Mechanism Joint Implementation iv. a. c. V. Differentiate between Environmental Risk and Catastrophic risk. Discuss the impact of the two risk on the insurers and insured. i. . Question Four (4) How might environmental Finance prepare the current generation for the challenges ahead? How might a person that is arranging the financing of a project change the structure of the financing to improve the annual debt service coverage ratios for the project? Suppose the net present value of a project is positive for a project that has a life of 25 years. The project is financed with a 10-year loan at a 12% interest rate and covering 80% of the cost of the project. It is found that the annual debt service capacity ratios for the first 4 years are all less than one. What do you suggest could be changed to the structure of the financing of the project that might be improving the annual debt service capacity ratios of the project? iii. iv. Differentiate between Carbon Tax and the Cap and Trade concept of reducing carbon emission. In addition, list and explain the macro and micro drivers of carbon price on the Carbon Market. V. Discuss how the insurance industry will use disaster bond and weather derivative to transfer risk to the capital market