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Tollco responsible for 2years D&B and 35 years O&M.
A completely private financing Toll road project, primarily by bank loan.
Start in year 3, TollCo will distribute 45% of company's cash balance to its sharholders if the balance is > $10MM.
At the end of 37th year, company will liquidate and remaining balance will paid as dividend to shareholders. Analysis Analysis Assuming 60% loan amount, we can get:
IRR = 4.72%
Assume that the bank insists on equity funding for at least 10% of the project, and the loan interest rate is
r = 2% + 0.1*(% financed by loan)
using Non-linear program to get:
the optimum loan = 24% and maximizes TollCo’s IRR = 6%. Tollco project data Market Senarios Analysis Bad situation: Toll Revenue -15%, we get
% financed by loan =15% and IRR = 4.44%
Good situation: Toll Revenue +15%, we get
% financed by loan =33% and IRR = 7.5% Group 8 Lihan Yang: ly2277
Bin Wu: bw2385
Yao Yao: yy2346
Lele Tang: lt2472
Huiyao Chen: hc2634 Conclusion & Recommendation Consider the uncertainty in construction process, the TollCo should loan no more than 24%, which is $60MM.
Within 24% loan %, TollCo could achieve 6% IRR.
As a risk-aversion forecast, the project construction cost may be likely to over budget, and the revenues may be under estimated. In this case, considering the results of scenario analysises before, our recommended loan % is 20%, which may have a 5.99% IRR with the original data. Limitation & Assumption of model This model is based on the fixed data, while in the real world those figures are uncertain and will made our model inefficient.
The revenue of the toll road might not be a fixed number during the 35 years operation and it might loss of earnings in the last few years as new roads would be built.
The construction cost is easily over the budget consider the construciton practices in real world. Based on the program analysis, X-axis is the percentage deviation of IRR centered around 6%. The Y-axis is the correspondend NPV.
There is only one IRR corresponde with the point of NPV=0. Analysis The optimum loan % is 24%. When NPV=0, the optimum IRR is 6%. Real World Senario Analysis (assuming)