Mobility Engineering - Finance and Management of Infrastructure Investments

Full exam

Section I – Q1 5 9 4 B 8 12 3 18 21 3 H 18 21 0 5 12 7 C 5 12 0 21 26 5 I 21 26 0 12 14 2 F 19 21 7 The critical path is A -C-E-H -I. The project duration is 26 weeks. 0 5 5 A 0 5 0 12 13 1 G 20 21 8 12 18 6 E 12 18 0 9 17 8 D 13 21 4 Section I – Q1 (Solution) Section I – Q1 (Solution) Activity Immediate Predecessor Duration (weeks) Duration Reduction Total Crashing Cost (€) Unitary Crashing Cost (€) A - 5 3 36 000 € 12 000€ B A 4 1 9 000 € 9 000€ C A 7 6 36 000 € 6 000€ D B 8 2 3 000€ 1 500€ E B, C 6 4 32 000 € 8 000€ F C 2 1 1 000 € 1 000€ G C 1 - - - H E 3 2 14 000€ 7 000€ I D, F, G, H 5 2 18 000€ 9 000€ ➢ Among activities of the critical path A -C-E-H -I, the lowest unitary crashing cost and highest potential benefit is associated with the crashing of activity C. However, crashing C, would lead to an overall project duration reduction of 3 weeks, due to the emergence of another critical path (A -B-E-H -I). As a consequence, crashing C is not convenient since the real economic saving (3*10 000 = 30 000€) is lower than the total crashing cost (36 000€). ➢ Consequently, the most convenient activity to crash is activity E, that leads to a real project duration reduction of 4 weeks. ➢ In this case the margin achieved is: 4*10 000 – 32 000 = 8 000€. 5 9 4 B 5 9 0 14 17 3 H 14 17 0 5 12 7 C 5 12 0 17 22 5 I 17 22 0 12 14 2 F 15 17 3 After crashing E, the critical paths are: ➢ A -B-D -I ➢ A -C-E-H -I 0 5 5 A 0 5 0 12 13 1 G 16 17 4 12 14 2 E 12 14 0 9 17 8 D 9 17 0 Section I – Q1 (Solution) Section I – Q1 (Solution) Activity Immediate Predecessor Duration (weeks) Duration Reduction Total Crashing Cost (€) Unitary Crashing Cost (€) A - 5 3 36 000 € 12 000€ B A 4 1 9 000 € 9 000€ C A 7 6 36 000 € 6 000€ D B 8 2 3 000€ 1 500€ E B, C 6 4 32 000 € 8 000€ F C 2 1 1 000 € 1 000€ G C 1 - - - H E 3 2 14 000€ 7 000€ I D, F, G, H 5 2 18 000€ 9 000€ ➢ Among activities of the critical paths A -B-D -I and A -C-E- H -I it is convenient to crash D+H since it allows to reduce project duration by 2 weeks and to achieve the highest economic margin (10 000*2 – (3 000 + 14 000)) = 3 000€. 5 9 4 B 5 9 0 14 15 1 H 14 15 0 5 12 7 C 5 12 0 15 20 5 I 15 20 0 12 14 2 F 13 15 1 After crashing D+H, the critical paths are: ➢ A -B-D -I ➢ A -C-E-H -I 0 5 5 A 0 5 0 12 13 1 G 14 15 2 12 14 2 E 12 14 0 9 15 6 D 9 15 0 Section I – Q1 (Solution) 5 9 4 B 5 9 0 14 15 1 H 14 15 0 5 12 7 C 5 12 0 15 18 3 I 15 18 0 12 14 2 F 13 15 1 At this point the only activity that is convenient to crash is activity I (Margin = 2* 10 000 – 18 000 = 2 000€). Since the target duration of 18 week is achieved and there is no other penalty to avoid, the crashing algorithm stops since there is no other activity that is convenient to crash. After crashing I, the critical paths are: ➢ A -B-D -I ➢ A -C-E-H -I 0 5 5 A 0 5 0 12 13 1 G 14 15 2 12 14 2 E 12 14 0 9 15 6 D 9 15 0 Section I – Q1 (Solution) Section I – Q2 Section I – Q2 (Solution) ➢ �������������� ���ℎ ���� �= �������� �− ���������� �− ��������� � ➢ ����� � = �������������� ���ℎ ����� ������ ����������� ���� �������������� ������+����������� ���� ������������� ������� ➢ ������������������� ������������� = � � = 3 ➢ ����� ���� = ����� ������� ➢ ����� ������� = � + � = 4� ➢ ����������� = 44 000 4 = 11 000€ ➢ ��� �= ��� ������ �Year 1 Year 2 Year 3 Financial Leverage Total Uses Discount Rate Senior Debt Repayment 4 000.00 € 4 000.00 € 4 000.00 € 3 44 000.00 € 5.00% OPEX 8 000.00 € 8 000.00 € 8 000.00 € CAPEX 6 000.00 € - € - € Senior Debt Interests 200.00 € 200.00 € 200.00 € EAT 400.00 € 2 000.00 € 4 000.00 € Revenues 15 000.00 € 17 000.00 € 20 000.00 € ADSCR ??? ??? ??? ROE ??? ??? ??? LLCR??? Operating Cash Flows 1 000.00 € 9 000.00 € 12 000.00 € ADSCR 0.24 2.14 2.86 Equity 11 000.00 € ROE 0.04 0.18 0.36 NPV Operating Cash Flows 952.38 € 8 163.27 € 10 366.05 € NPV Debt Repayment 3 809.52 € 3 628.12 € 3 455.35 € LLCR 1.79 Section II – Q3 Section II – Q3 (Solution) ➢ ��� ����������� = ��������� − ������������������� ����� − ����� ➢ ��� ����������� ����������� = ��� ����������� �������� ➢ ����� ������ = ����� ������������������������������������ + ����������� ➢ ������ �� ������ = ��������� ����� ������Company A Revenues 15 000.00 € EBIT 5 000.00 € Financial Costs 2 000.00 € Taxes 1 000.00 € Equity 10 000.00 € Total Liabilities 40 000.00 € Net Profit Margin ??? Return on Assets ??? Net Profit 2 000.00 € Net Profit Margin 0.13 Total Assets 50 000.00 € Return on Assets 0.10 Section II – Q4 Section II – Q4 (Solution) Section II – Q4 (Solution) �������������������� �� ���������� 0 = ����� ����������� ���� ∗ �������������������� ��� ������������� ��������� ���� ���� � = σ �=0 ��������� ������������ ���� �������� � ������ ���� �= ����� ����������� ���� − ��������� ���� ���� � ��������������� �� ���������� � = ������ ���� �∗ ��������������� ��� �������������Year 0 Year 1 Year 2 Senior Debt Drawdown 50 000.00 € 40 000.00 € 30 000.00 € Equity 10 000.00 € 10 000.00 € 10 000.00 € Commission Fee [%] 4.50% Commitment Fee [%] 1.50% Total Senior Debt 120 000.00 € Commission Fee 5 400.00 € Cumulated Used Debt 50 000.00 € 90 000.00 € 120 000.00 € Unused Debt 70 000.00 € 30 000.00 € - € Commitment Fee 1 050.00 € 450.00 € - € Total Uses 150 000.00 € Section II – Q5 Section II – Q5 (Solution) Ex . A company needs to finance part of an infrastructure project using external financial resources . It borrows money by issuing a corporate bond at time t0. The bond has maturity of 1 year (t 1) and pays 5000 M€ at maturity t1.The bond is a ZCB .The company collects 4250 .5 M€ when issuing the bond at time t0.Please select the correct answer(s) . P(t0) = 4250.5€ P(t1) = 5000€ 4250.5 = 5000*(1+i)^( -1) 4250.5 /5000 = (1+i)^( -1) 0.8501 = (1+i)^( -1) i=(1 -0.8501)/ 0.8501 = 0.1763322 Section III – Q6 Please, see Slides 36 -39 of lecture “Public Private Partnership”. Section III – Q6 (Solution) Macro -economic Benefits : ➢ Close the infrastructure gap :involving private investors may allow to increase the amount of infrastructures that are built with respect to the case in which infrastructure projects are financed only by public actors ;this aspect is relevant also with respect to solutions to share risks connected to concentrated exposures, especially in specific areas or sectors ➢ Avoid “white elephants” :the participation of private actors may contribute to enhance a more careful screening of the projects, their cost - benefit analyses and impact evaluation, leading to the selection of most competitive initiatives .This may allow to avoid “white elephants” (i.e.projects that are extremely costly and out of proportion to their usefulness) ➢ Boost private sector competitiveness :to address market failures associated to low investments by the private sector and in SMEs (small - medium enterprises) .Small private firms projects may face hard access to traditional financial markets and instruments, or cannot easily diversify their exposure .PPPs can represent a valid alternative to finance such projects contributing to enhance the competitiveness and penetration of the private sector ➢ Stimulate GDP and innovation : structural infrastructural projects can constitute drivers of economic growth and may stimulate the innovation rate, thus leading to better economic trajectories and performances ➢ Control the level of public debt :the contribution of private resources may reduce the investment made by public bodies, thus limiting the risk of high public debt Section III – Q6 (Solution) Micro -economic Benefits : ➢ Time : satisfy the requirements of a heterogeneous set of (public -private) stakeholders may contribute to ensure that the project will be delivered on schedule without significant delays ➢ Cost : the need to properly remunerate all parties involved in a PPP should ensure a proper assessment of cost items and their uncertainty, reducing the risk of extra budget expenditures and misaligned cost allocation ➢ Quality :e.g.PPP contracts are normally designed such that the actor responsible for the operating phase should ensure a service of adequate quality and standards Section III – Q6 (Solution) Why a government, or public entity, should seek a partnership with a private entity? ➢ Financial performance : getting a higher Value for Money (VfM ) through a better combination of quality and price/costs ➢ Project performance : enjoying the perceived higher level of efficiency and expertise of the private sector, its skills and capabilities ➢ Control : although financed by a mix of public -private financial resources, the public sector typically keeps ownership/control over the assets and benefits from outputs ➢ Budget constraint :avoidance of relying only upon public sources of finances, taxes and debts ➢ .. Section III – Q7 Section III – Q7 (Solution) Please, see Slide 17 of lecture “Project Finance and Financial Sustainability”. Typically, a project is financed through two macro -category types of instruments :equity and debt . Examples : ➢ Base Loan (debt side) : utilized to cover key costs such as those related to acquiring land, construction, financial interests accrued during the construction phase, finance fees accrued during the construction phase → Long -Term amortized reimbursement (during the operational phase) ➢ VAT Loan (debt side) : to finance VAT (Value Added Tax) that are accrued during the construction phase (depends on the timing of sales to costumers) ➢ Stand -by Facility (debt side) : buffer for contingencies that could happen during the construction phase (if specific events occur) ➢ Working Capital Facility (debt side) : it emerges during the operational phase as a revolving credit (e .g., account receivables and account payables) These financing facilities are typically collateralized by the SPV assets (we will introduce sooner the concept of SPV – Special Purpose Vehicle)