In a Term Loan appraisal, the 'DSCR' is a critical

Q: Answer-In a Term Loan appraisal, the 'DSCR' is a critical ratio. What does a DSCR of less than 1 indicate?

Debt Service Coverage Ratio DSCR Net Operating Income Total Debt Service. A DSCR below 1 means the projects operating cash flows are insufficient to cover the annual principal and interest payments, signaling higher credit risk.

ratio. What does a DSCR of less than 1 indicate?

A The project is highly profitable Correct Answer Incorrect Answer

B The project has insufficient cash flow to cover its debt obligations Correct Answer Incorrect Answer

C The project's assets are more than its liabilities Correct Answer Incorrect Answer

D The borrower has a high credit rating Correct Answer Incorrect Answer

E The project is in the initial stage Correct Answer Incorrect Answer

Solution

Debt Service Coverage Ratio (DSCR) = Net Operating Income / Total Debt Service. A DSCR below 1 means the project's operating cash flows are insufficient to cover the annual principal and interest payments, signaling higher credit risk.

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