You are the financial manager of the Crossrail 1 project in London. The Board overseeing the...

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You are the financial manager of the Crossrail 1 project in London. The Board overseeing the project, acting on behalf of the UK Government, has asked you to provide a financial analysis of the project for business planning purposes. With two years to go before the commencement of train operations, you have assembled the most recent estimates of the capital investment cost and net revenues, which were forecast 1 year ago. While the user benefits and ticket revenues are assumed to remain the same each year of the 60-year useful life, it is anticipated that maintenance costs will be higher in the final 30 years of the project. They are shown in Table 1. Item of cash flow Capital investment User benefits (Includes Time savings, Traffic congestion relief) Ticket revenues Operational costs and maintenance Each year (for Today (£bn) the first 30 years) (£bn) -8.5 0.8 b) What is the payback period of the project? [Select ] 0.35 -0.422 Each year (for years 31 to 60) (£bn) c) What is the internal rate of return (IRR) of the project? [Select] 0.8 For projects such as Crossrail 1, the UK Government typically estimates a 60-year useful life and uses a discount rate of 3.5%. a) What is the net present value (NPV) of the project? [Select] 0.35 -0.609 d) Based on your calculations is Crossrail 1 a viable project at the discount rate? Yes You have been asked by the Board to present an analysis that incorporates more recent cash flow information about the Crossrail 1 project. Before the project becomes operational, the capital investment has been given a worse scenario estimate that is 35% above the forecast in table 1. The Board would like to see the analysis if the net cash inflows will also be 35% below expectation over the 60-year life whether under the existing hurdle rate of 3.5% it would remain viable. a) What is the net present value (NPV) of the project? [Select] b) What is the internal rate of return (IRR) of the project? 2.27% c) Based on your calculations is Crossrail 1 a viable project at the discount rate? [Select] You are the financial manager of the Crossrail 1 project in London. The Board overseeing the project, acting on behalf of the UK Government, has asked you to provide a financial analysis of the project for business planning purposes. With two years to go before the commencement of train operations, you have assembled the most recent estimates of the capital investment cost and net revenues, which were forecast 1 year ago. While the user benefits and ticket revenues are assumed to remain the same each year of the 60-year useful life, it is anticipated that maintenance costs will be higher in the final 30 years of the project. They are shown in Table 1. Item of cash flow Capital investment User benefits (Includes Time savings, Traffic congestion relief) Ticket revenues Operational costs and maintenance Each year (for Today (£bn) the first 30 years) (£bn) -8.5 0.8 b) What is the payback period of the project? [Select ] 0.35 -0.422 Each year (for years 31 to 60) (£bn) c) What is the internal rate of return (IRR) of the project? [Select] 0.8 For projects such as Crossrail 1, the UK Government typically estimates a 60-year useful life and uses a discount rate of 3.5%. a) What is the net present value (NPV) of the project? [Select] 0.35 -0.609 d) Based on your calculations is Crossrail 1 a viable project at the discount rate? Yes You have been asked by the Board to present an analysis that incorporates more recent cash flow information about the Crossrail 1 project. Before the project becomes operational, the capital investment has been given a worse scenario estimate that is 35% above the forecast in table 1. The Board would like to see the analysis if the net cash inflows will also be 35% below expectation over the 60-year life whether under the existing hurdle rate of 3.5% it would remain viable. a) What is the net present value (NPV) of the project? [Select] b) What is the internal rate of return (IRR) of the project? 2.27% c) Based on your calculations is Crossrail 1 a viable project at the discount rate? [Select]

Answer rating: 100% (QA)

a The net present value NPV of the project can be calculated using the following formula NPV CFt 1 rt I Where NPV net present value CFt cash flow at time t r discount rate t time period I capital inve... View the full answer