Team Project:
President George Bush
Turnpike Western Extension
Financial Analysis
Student Group:
John Doe
Karen Aggies
Vijay Singh
Soojin Kim
1
TABLE OF CONTENTS
ABSTRACT ...............................................................................................................................3
PROJECT INTRODUCTION .....................................................................................................4
CONTRACTUAL STRUCTURE ...............................................................................................6
FINANCIAL ANALYSIS ...........................................................................................................9
Data Sources and Components.................................................................................................9
Assumptions ............................................................................................................................9
Net Present Value (NPV), IRR and Payback Period Analysis.................................................11
Sensitivity Analysis ...............................................................................................................14
NPV sensitivity to traffic volume ........................................................................................15
NPV analysis using Monte Carlo Analysis..........................................................................15
RISK ASSESSMENT AND MANAGEMENT .........................................................................18
Forward-looking Statements ..................................................................................................18
Conditions Affecting the Advances by TxDOT ......................................................................18
Uncertainties of State Highway Fund .................................................................................18
TxDOT’s ability to meet obligations ...................................................................................18
Risk Factors Relating to the NTTA System ...........................................................................18
Rising interest rate and market changes .............................................................................19
Swap transaction risks .......................................................................................................19
Risks of Build America Bonds ............................................................................................19
Construction of Toll Facilities ...............................................................................................19
Operation Risks .....................................................................................................................20
Ability to pay the debt ........................................................................................................20
Variation of Toll Rates .......................................................................................................20
Maintenance costs ..............................................................................................................20
Motor fuel prices and taxes ................................................................................................20
Environmental Litigation Risk ...............................................................................................21
CONCLUSION .........................................................................................................................22
APPENDIX ..............................................................................................................................23
BIBLIOGRAPHY .....................................................................................................................26
2
ABSTRACT
In this case study, the President Gorge Bush Turnpike-Western extension (PGBT-WE) is the
targeted project in which the team would conduct a life cycle cost analysis to assess its economic
feasibility. As a joint effort between the North Texas Turnpike Authority (NTTA), the Texas
Department of Transportation (TxDOT), and the Regional Transportation Council (RTC) of the
North Central Texas Council of Governments (NCTCOG), the PGBT WE connects the SH 183
interchange to the ramp of I-20, which extends the existing SH 161 by approximately 11.5 miles.
The goal of this project is to meet the increasing traffic demand of the Terrant and Dallas
counties. There were a total of four phases within the project, in which the design-bid-build
delivery method was used for the previous three phases, and the design-build delivery method
was applied to phase 4.
In the previous three phases, TxDOT was in charge of the design and construction and the NTTA
was responsible for the ETC/ITS equipment. In phase 4, the NTTA takes responsibility for
design and construction work. All the sections in phase 1 through 3 had been open to the public
before 2010. The actual payment to TxDPT was $458,000,000 plus interest in Phases 1 through
3. Phase 4 of the project has 68% of the work completed and is expected to be open to traffic in
October 2012. The current total estimated cost for phase 4 was $546,598,381. Also, with the
estimated operating costs and annual revenues, the team could perform a financial analysis by
using the net present value and internal rate of return methods. Additionally, Monte Carlo
Simulation is applied to reproduce the financial analysis as an alternative test method.
3
PROJECT INTRODUCTION
The President George Bush Turnpike (PGBT) is a key road way for the population of Dallas,
Texas. The turnpike is a 52 mile toll road that runs the outskirts of Dallas and serves as an
important connection point to all of the major interstates and state roads in the area. This project
has been in design consideration since the late 1950’s and through innovation with public-private
partnership, the western extension is being made into a reality.
Population in the area has greatly increased which has increased the amount of people on the
roads. This increase has led to major congestion in the area which the Texas Department of
Transportation (TxDOT) had recognized at the time but did not have the funds in the budget to
improve the area until a later date. The North Texas Tollway Authority (NTTA) entered into a
partnership with TxDOT to design, build and operate the President George Bush Turnpike
Western Extension (PGBT WE).
The PGBT WE is about 11.5 miles of road that will start at State Highway 183 and extend south
to Interstate 20. This project was broken into the following four phases:
Phase 1: This phase was completed by TxDOT and consisted of improvement to the interchange
connecting State Highway 183 and 163. In addition, this phase also included the construction of
frontage roads and cross streets from Interstate 30 south to Interstate 20.
Phase 1 Cost: $279,567,561.00
Project Delivery System: Design-Bid-Build
Completion Date: January 2009
Phase 2: This phase was completed by TxDOT and consisted of designing and constructing
frontage roads with two main lanes in each direction from State Highway 183 South to Interstate
30. This phase also included all of the supporting cross streets and slip ramps. NTTA designed
and constructed all of the necessary signing, pavement markings and Electronic Tolling
Collection (ETC) systems for this phase.
Phase 2 Costs: $231,614,424.00
Project Delivery System: Design-Bid-Build
Completion Date: April 2010
Phase 3: This phase was completed by TxDOT and consisted of designing and construction of a
third main lane in both directions from Conflans road south to North Carrier Parkway. NTTA
designed and constructed all of the necessary signing, pavement markings and Electronic Tolling
Collection (ETC) systems for this phase.
4
Phase 3 Costs: $90,265,397.00
Project Delivery System: Design-Bid-Build
Completion Date: May 2011
Phase 4: This phase was completed by NTTA using the design-build delivery system; this
allowed NTTA to transfer the risk to the builder. This phase consisted of designing and
constructing a four lane road between Interstate 30 and interstate 20. The phase included
eighteen slip ramps that were connected to main lanes, a five level full directional interchange at
Interstate 30 and a four level direct connection to Interstate 20. In addition, NTTA would design
and construct all of the necessary signing, pavement markings and Electronic Tolling Collection
(ETC) systems for this phase
Phase 4 Costs: $546,598,381.00 (this price includes the ETC work for Phase 2 and 3)
Project Delivery System: Design-Build
Completion Date: Early 2013
Phase 4 Additions: NTTA is also responsible for constructing a railroad bridge over the main
lanes of PGBT WE; the railroad bridge is for the Union Pacific Rail Road (UPRR). TxDOT was
responsible for the design of the railroad bridge but it was constructed by NTTA. In addition,
Phase 4 has two at-grade crossings of the frontage road.
Phase 4 Future Expansions: In the year 2020, NTTA is responsible for finishing a lane widening
project between Interstate 30 and Interstate 20. The project will expand the center median by 12
feet in both directions. In the year 2031, NTTA will expand the same section of road by adding
10 feet to the inside shoulder in both directions.
Phase 4 Costs in 2020 for Expansion: $23,434,604.00
Phase 4 Costs in 2031 for Expansion: $29,867,694.00
In the appendix, Figure 6 is a map that shows where each phase will take place. Also, Table 4
shows how the phases were sub-divided and their completion dates. Lastly, Figure 7 shows the
project as of November 2012.
5
CONTRACTUAL STRUCTURE
This project was truly a great example of a public-private partnership because it allowed both
parties to benefit from the enterprise. TxDOT was able to get this road built 10 years ahead of
schedule and NTTA was presented with the opportunity of a great investment. To better
understand how this partnership works, it is best to understand the milestones and funding
streams of the project.
In 2004, TxDOT began phase one of the project which they funded from the State Highway
Funds (aka: Fund 6). They used these funds to complete Phases one through three in the
subsequent years. NTTA negotiated a deal with TxDOT in order to pay for construction
therefore allowing them to toll the road in the simplest of forms. The agreement between NTTA
and TxDOT included the following:
•
•
First, NTTA was to pay TxDOT $458 Million starting which would be utilized to
pay off the construction cost from phases one through three.
TxDOT provided NTTA with a toll equity loan
o A toll equity loan states that if NTTA does not make enough money
during the year, TxDOT will make up the difference
o This allowed NTTA to receive a much higher bond rating; therefore the
bonds were much more lucrative to investors
With this agreement in place, NTTA was able to raise $674.3 million from selling the bonds. In
addition, they were able to secure a loan from the Federal Highway Administration (FHWA) for
$418.4 million; the loan was from the Transportation Infrastructure Finance and Innovation Act
(TIFIA). Figure 1 below displays the path of money for the project:
Figure 1: Flow of money in and out for project (Davis, D. D. 2011)
6
Figure 2 below displays the milestone of how the money was raised over the course of the
project:
Feb, 2010
24 Feb, 2010
• $20 Million received from FHWA
• Grant
• TxDOT entered into a toll equity loan with NTTA
• The toll equity loan allows NTTS bonds to be backed by their State Highway fund in case they do not make the agreed upon revenue that year
• NTTA accepted the toll equity loan
• NTTA agrees to pay $458 Million upfront
26 Feb, 2010
• The money paid upfront goes towards Phase I-III that TxDOT has already completed
25 June,
2010
15 April,
2011
28 April,
2011
13 Oct, 2012
• NTTA pay $200 Million towards the $458 Million that they owe TxDOT
• NTTA pays the remainder to TxDOT upon financial close
• NTTA finalized loan with FHWA
• NTTA received a loan for $ 418.4 Million (TIFIA)
• BANS to be paid off by TIFIA loan from FHWA
• Finical close for buying Special Projects System Revenue Bonds and BANs
• Phase 4 is open for traffic
• The two remain connecting ramps to I-30 will open in early 2013
• NTTA will have to pay TxDOT 50% of the net revenue made during the operational period of the road
30 Jul, 2061
Figure 2: Milestone of money raised
Table 1 below shows the exact amount of money that came into the project and what it was spent
on:
7
Table 1: Money raided and allocated during PGBT WE (Davis, D. D. 2011)
After completion of the project, all maintenance of the main lanes, ramps and frontage roads will
be the responsibility of NTTA. In addition, it is also NTTA’s responsibility to provide courtesy
patrol of the road ways as well as accident response support. TxDOT will be responsible for
driveway and utility permitting as well as signal operation and maintenance. In figure 3, in the
appendix, the projected layout of cost per year for NTTA to maintain the roadway can be
viewed.
The project was a very large undertaking by all parties involved and thus far has proven to be a
success. During the remainder of the report, a further examination of the projects financial
outcome will be discussed. Depending on the result of the BOT project, it could lay the ground
work for other states DOT to mimic this process.
8
FINANCIAL ANALYSIS
Data Sources and Components
Over the life cycle of the project, the cash outflows include the annual operating and
maintenance costs and interest payments, which are estimated by the North Texas Tollway
Authority (NTTA). The interest payments for different bonds and loans are summarized as 1st
Tier interest and USDOT TIFIA (2nd Tier) interest listed in the Outstanding Debt 2012 official
document and recorded as the 1st Tier and 2nd Tier debt service in this study. The detailed
payment method for the bonds and loans are written in the contract upon the agreements between
corresponding parties. The cash inflows are composed of the toll revenue estimated by external
organization and Wilbur Smith Association (WSA), and other revenue estimated by NTTA.
Assumptions
The project contains numerous sources of information and that absolutely benefits our data
collection. Nevertheless, since the project is composed of several phases and constructed over
such a long span of time, it will require a great deal of time, definitely exceeding the allowance
of our anticipated timeframe, to collect and verify all the data collected, especially under a
circumstance that the available assistance from the insiders of the project are very limited.
Therefore, before conducting the financial analysis for the PGBT-WE project, the following
assumptions are made:
1.
Assume that the upfront payment of $458million to cover the Phase 1-3 costs of TxDOT
is paid in the year of 2009.
2.
Assume that all the interest and principle are paid off at the end of 2047 based on the
current available data.
3.
Assume the interest payments are only for the PGBT-WE project despite its total amount
is surprisingly high, ignoring the possibility that a portion of that amount might be used for some
other purpose with no relation to PGBT-WE.
4.
Assume the other revenue after 2047 is generated by following a linear regression model
based on the pattern of the Authority’s estimated other revenues before 2047. Toll revenue to
traffic volume can be generated using the method as well.
5.
Assume the weighted average cost of capital (WACC) is 4.5% with a reasonable
judgment of numerous interest rates on the raised capital.
9
6.
Assume that the capital raising is still undergoing and some of the cost of capital is
estimated and therefore, leave more room for us to manipulate in the following financial
analysis.
7.
Assume that the WACC is normally distributed with mean value equaling to 4.5% and
standard deviation equaling to 1%.
8.
Assume year 2011 is year 0 as the start point of the analysis as that can somehow ease
our study and the total analysis period is from year 2011 to 2061
9.
Our financial analysis mainly focuses on construction of phase 1 through phase 4 and
neglect the additional construction such as widening the lane. In other words, we simply focus on
construction costs that are $458,000,000 and $546,598,381.
According to document Official Statement 2011 SPS Bonds of project of PGBT-WE, other
revenue was estimated by the authority and only presented to the year 2047. With all the official
documents available, other revenue after year 2047 cannot be retrieved and therefore, an estimate
based on the trends of the previous data is adopted.
By inputting the other revenue from year 2011 to 2047, the linear regression model is generated
as below. Accordingly, the other revenues for year 2047 to 2061 are estimated using the plotted
regression function and used for the financial analysis.
Linear Model-Other Revenue
Other revenuce
$14,000,000
$12,000,000
y = 184,771.01x - 366,906,471.26
$10,000,000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
$2000
2010
2020
year
2030
2040
2050
Figure 3: Linear model used for estimating other revenue
Below, an exponential trend line is plotted to illustrate the relationship between traffic and toll
revenue for the sake of sensitivity analysis in the following section.
10
Exponential model-toll renenue
Toll revenue
$600,000,000
y = 10,025,276.0175378000e0.0000000238x
$500,000,000
$400,000,000
$300,000,000
$200,000,000
$100,000,000
$10
60
110
160
210
Traffic (in millions)
Figure 4 Exponential Model used for estimating toll revenue
Net Present Value (NPV), IRR and Payback Period Analysis
The annual costs and revenues are listed in Table 2. The total revenue is the sum of the toll
revenue and other revenue. Net revenue is obtained by deducting the interests (1st and 2nd tier
debt service) and the operation and maintenance costs for each year. The project costs are
composed of the phase 1-3 costs at year 2009 and phase 4 costs over 7 years. For phase 4 costs,
the numbers before 2011 are the actual costs recorded by the Authority, and the numbers after
2011 are the estimated values provided by the Authority. The last column is the net cash flow
calculated for each year.
In this study, the year 2011 is considered as year 0 to perform the further analysis. With a 4.5%
WACC, the net present value in year 2011 equals to $34,661,227 as shown in table 1. IRR is 5%
which is slightly higher than the WACC 4.5%. In order to visualize the payback period, cash
flow diagram superposed with cumulative NPV is presented. At a WACC of 4.5%, the project
finally recovers all the investments at the end of the year 2061. The payback period is somehow
astonishing and might hold any investors back from investing the project. However, from the
perspective of NPV and IRR, the project is still profitable and worth of investing.
11
Table 2: Cash flows through years 2009-2061
12
Table 3 Cumulative NPV through years 2009-2061
13
Table 3 shows the calculated cumulative net present value from the year 2009 to 2061. The
applied WACC is 4.5%. Accordingly, the profile of cumulative net present values is plotted in
Figure 4. The blue columns represent the net cash flows for each year. From this graph, the
project
becomes
profitable
in
the
last
year
of
this
analysis.
NPV profile
$600,000,000
$400,000,000
$200,000,000
$$(200,000,000) 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
$(400,000,000)
$(600,000,000)
$(800,000,000)
$(1,000,000,000)
$(1,200,000,000)
Cash
flow
Cumulati
ve NPV
Figure 4 NPV profile and net cash flows
Sensitivity Analysis
Traditional analysis of NPV has its own inherited limitations on its assumptions. The method
assumes a constant WACC. It is hard to defend that over a period of half-century and with that
multiple funding sources, the WACC can remain advantageously constant to the concessionaire
before all the capital has been secured. Given the fact that the WACC does have a big influence,
the sensitivity of NPV to the changes of WACC would draw the interest of project manager.
There are several financial simulation techniques and one of which that has been widely
employed in evaluating decision-making measured here by NPV is Monte Carlo Simulation.
Two main virtues that encourage the employment of Monte Carlo Simulation are flexibility and
simplicity. Monte Carlo Simulation has been extensively used in Wall Street valuing mortgage,
securities, exotic options and derivative securities. However, Monte Carlo Simulation application
recognizes no boundaries of profession. Constructing new plants, investing in natural resources,
company expansion and as such are few of many successful, real investment problems that have
utilized Monte Carlo Simulation as a consulting tool for decision-making. Thus, in this report,
we attempted to obtain NPV by using Monte Carlo Simulation and discuss the difference that
between the traditional NPV and NPV obtained using Monte Carlo Simulation.
Two input variables are considered important to forecast the NPV of the project payoff in our
case. The first one is the forecast transaction, namely the forecast traffic, and the second one is
14
the WACC, namely discounting rate. In this section, a sensitivity analysis based on these two
parameters is conducted.
NPV sensitivity in response to volatility of traffic volume using Monte Carlo Simulation
It is inevitable to have some extents of errors when making a certain forecast. In an updated
report of forecast revenue and traffic document of 2011, the traffic volume actually was
overestimated by 8.5% as a result of multiple erroneous forecasts such as the forecast of the
demographics and also the external contribution factors such as gasoline prices increase. It seems
impossible to find a model to include all the uncertainties in the future. Therefore, for the first
parameters, we imagine a situation that a 10% or less of variance is considered in the forecast
traffic. In other words, ± 10% of tolerance is expected in forecast traffic. Tolerance event is
stochastic evenly. Be noted that forecast traffic for each year has its own tolerance to bear and
they are individual to each other. By using excel, 1,000 times simulation is conducted. Figure 5
shows probabilities of possible NPVs.
Probability
Trial times: 1,000
Forecast NPV
20.00%
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Forecast NPV
Figure 5 forecast NPV to changes of forecast traffic
With all other factors remaining constant, NPV of the project payoff has an expected value of
$142,299,985.97. Although some of the assumptions might not be accurate such as using trend
line to estimate the revenue to the changed traffic, and the risk of amplifying the errors if the
assumption is wrong, this sensitivity analysis is applied to provide a different picture of the
project’s profitability to readers.
NPV analysis in response to fluctuation of WACC using Monte Carlo Simulation
15
In this case, the WACC is the independent variable which we assume that it is random in form of
normal distribution with a standard deviation, assumed as 1%. In the last section of traditional
NPV, an assumed WACC, with reasonable judgment, is 4.5%. Using excel function
NORMSINV (RAND()), one can easily generate a series of random WACC that is normally
distributed with a mean value of 4.5%. Corresponding NPV as of 2011 can be calculated and
analyzed. We conducted the simulation 1,000 times and therefore obtained 1,000 results of NPV
corresponding to each randomly selected WACC. Probability of forecast NPV is shown in Figure
5.
Trial times: 1,000
Probablity
0.06
Forecast NPV
0.05
0.04
0.03
0.02
0.01
0
Figure 5 forecast NPV to changes of WACC
Of this set of forecast NPV, the expected value equals to $108,025,269.44. The NPV previously
obtained is $34,661,227. How should we interpret the difference of the two results? The
difference stems from the different assumption of two approaches. The traditional NPV approach
based on discounted cash flow (DCF) analysis is straightforward and makes full use of
information that are available at the time of study, yet they are static. It completely ignores any
possible changes if you do not take it into account even though you can surely foresee them, for
example, volatility of forecast input parameters and fluctuation of interest rate. In other words,
the traditional NPV approach is entirely based on a set of fixed assumptions related to project
payoff, whereas the project payoff usually is uncertain and probabilistic. Ironically, the
traditional NPV approach based on DCF analysis focuses only on the downside risk and
overlooks any potential rewards. With that particular nature of the method, it certainly
overlooked many opportunities that come with the changes. Monte Carlo Simulation approach in
this study, on the other hand, considers the changes of WACC in the foreseeable future.
Amazingly, taking each of those parameters alone into account has made such a noticeable
difference. And with more than one approach such as real option simulation to evaluate NPV of
16
a project, the project could become more favorable. With more sophisticated methodology being
developed, a more realistic façade of a project can be revealed.
17
RISK ASSESSMENT AND MANAGEMENT
Forward-looking Statements
The forward-looking statements included in the official statement and other documents provided
by the Authority are basically predictions for the future in order to perform a complete project’s
feasibility study. Those predictions like annual traffic amount and revenue are based on the data
available at the time the Authority was preparing the document. Also, quite an amount of
assumptions and estimates are used to predict for traffic and revenues which amount could be
affected by business, economic, market, political and social conditions or unexpected events.
Thus, there is no guarantee that the actual generated revenues could be the same as the predicted
ones.
Conditions Affecting the Advances by TxDOT
Uncertainties of State Highway Fund
When toll revenue from PGBT-WE is insufficient for the expected fund amount to be deposited,
the TxDOT is supposed to make advances to the trustee. The amount of advances would be paid
by the State Highway Fund which partially from the collected revenues, federal funds, and other
sources.
The revenue available depends on the state and national economic conditions,
population growth rate, level of traffic, and many other factors. Again, the federal funds could
also be affected by changes in regulations, law, policies, and federal revenues. No guarantee
could be made that the TxDOT would get instant appropriation when needed.
TxDOT’s ability to meet obligations
The State Highway Fund is the major funding source for TxDOT, which depends on the
appropriation by the state legislature. If TxDOT fails to get sufficient appropriation from the
state legislature and cannot find other appropriation sources, it cannot meet the obligations.
Although the federal government provided the Federal-Aid Highway Program (FAHP) as a
protective fund to the states, the FAHP historically only operates for a limited period of time due
to the revenue shortfall. Different proposals for the extension of the FAHP are considered but
not enacted yet by the congress.
Risk Factors Relating to the NTTA System
With the TELA and the Trust Agreement, the Authority needs to provide additional funds to
cover the excessive amount of project costs that go beyond the budget. Very likely, a big portion
of the additional funds would come from the revenues collected from the NTTA System. In this
18
case, the following factors should be considered because of their influences on revenues
generated by NTTA System.
Rising interest rate and market changes
If the Authority cannot pay the dedicated principal and interests of the bonds on the mandatory
tender dates, the interest rate would be raised to 12% in an annual basis, which could
tremendously affect the costs. The interest rate could also increase under other conditions listed
in the signed agreement.
On the other hand, it is hard to predict when the credit market would have the disruption. When
the market disruption occurs and the Authority cannot approach the credit market, the project
would possibly be delayed, resulting in the increase of costs and reduction of revenues.
Swap transaction risks
With the NTTA System Trust Agreement, the Authority has the interest rate swap transactions
with Citibank N.A., New York, and JPM under the ISDA Master Agreements. There is a risk
that the variable rate from the ISDA Master Agreements would not match the one paid for the
bonds. If the situation is not favorable, the Authority might terminate the obligations under
certain conditions and end up with paying a certain amount of money.
Risks of Build America Bonds
Previously, the Authority issued “Build America Bonds” to receive a proportional amount of
payments from United States Treasury under the condition that certain fillings are made to the
Internal Revenue Service. If the Authority fails to make fillings, it fails to receive the payments.
In addition, the change of law could also cause the deduction of the payments. Once the
payments are eliminated or reduced, the Authority might have less capabilities of paying the
excessive amount of costs that beyond the project budget.
Construction of Toll Facilities
When building the toll facilities, the common risks would be budget overrun or time delay. The
possible causes of these problems include change of orders, environmental litigation matters,
right-of-way issues, unexpected historic or archeological conditions, utility relocation issues,
hazardous materials, price inflation, and other factors. If litigations occur between the authority
and bond providers or other parties, there is a possibility that the project would be not completed
19
on time and within budget, which increases the risk of revenue shortfall to pay the principle and
interest of bonds annually.
Operation Risks
Ability to pay the debt
For a new toll facility, there is a risk that it won’t collect sufficient revenues as expected to pay
for the debt service. The Authority’s capability of paying debt depends on the annual traffic
amount, effectiveness of the Authority’s administration, time savings experienced by users, toll
rates, location and price of the fuel station, existence of competing transit facilities, and other
variables that are not predictable.
Variation of Toll Rates
Though the study showed there is a flexibility to increase the toll rate, the resulting effect due to
the raised toll rate is not certain. The traffic amount might be reduced and thus also decreasing
the revenues. Moreover, if political pressure forces the toll rate to increase again, the resulting
effect might be more obvious. However, this risk is mitigated by the proposed action to raise the
toll rate every two years.
Maintenance costs
No guarantee could be made in terms of providing adequate funds for maintaining the facilities
annually in the long term. If the maintenance is not done properly and timely, the deterioration
of the facility could negatively affect the traffic volume.
Motor fuel prices and taxes
No guarantee could be made that the supply of motor fuel would always be adequate with
reasonable prices. If the motor fuel is inadequate and its prices or taxes are increased, it is
possible that the Authority would have fewer revenues.
In each of these cases, the TxDOT is responsible to advance if the revenues are insufficient to
cover the debt. However, there are also risks that TxDOT would fail to meet the obligations
under certain circumstances and limitations.
20
Environmental Litigation Risk
The transportation project should comply with the Clean Air Act (CAA). The current project is
designated non-attainment area for ozone under 8-hr standards. A new State Implementation
Plan (SIP) should be submitted to Environmental Protection Agency (EPA) for approval. Any
failures to meet the standard would cause significant problems such as time delays, cost overrun
and even more serious issues.
21
CONCLUSION
The complete financial study is conducted for this PGBT-WE project through years 2009 to 2061
by applying different methods including NPV, IRR, payback period, as well as the sensitivity
analyses. The basic components of the analysis include the project costs, annual operating and
maintenance costs, interest payments, and annual toll revenues and other revenues. To further
conduct the financial analysis, necessary assumptions are made and described in the body of this
report.
By using the traditional method, the net present value is found to be $34,661,227 with an
assumed constant 4.5% WACC. Internal rate of revenue is 5% which is slightly higher than the
assumed WACC. The project becomes profitable after the year 2061.
When considering the two important variables, forecast traffic and the WACC, the sensitivity
analyses are conducted to further evaluate the project’s financial feasibility. Assumed a 10% or
less variance of the forecast traffic, the expected net present value is $142,299,985.97 after 1000
simulation tests. Again, by randomly assigning the WACC based on the normal distribution with
a standard deviation of 1%, the expected net present value is $108,025,269 after 1000 times of
simulation tests.
In the construction world, the traditional method is more widely used when performing the
financial study due to its simplicity. However, the model might not be accurate enough to reflect
the actual situation because the significant variables are not considered. Therefore, as an
alternative method, the sensitivity analyses are also performed to obtain the expected net present
value by incorporating two significant variables in this study.
In addition, different risks throughout the project are analyzed and evaluated in this report. By
studying these risks, the readers would better visualize what challenges the project might have
and what influences those risk factors might have on the project. Overall, the financial aspect of
this BOT project is extremely challenging compared to that of other construction projects.
22
APPENDIX
Figure 6: PGBT WE Map and Location of Phases (HNTB Corporation 2011)
23
Table 4: Overview of Project Phases (HNTB Corporation 2011)
24
Figure 7: Overview of work completed, November 2012 (North Texas Tollway Authority 2012)
25
BIBLIOGRAPHY
Alsina, P. (2011). “President George Bush Turnpike Western Extension (SH 161).” Project
Profiles, < http://www.fhwa.dot.gov/ipd/project_profiles/tx_sh161.htm>
Davis, D. D. (2011) “The Story of a Toll Road or Maybe Two.” North Texas Tollway Authority,
Plano, Tx
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