The XYZ Pension Fund is resource-constrained and has only $8,000,000 available for co-investment in an infrastructure asset,
Question:
The XYZ Pension Fund is resource-constrained and has only $8,000,000 available for co-investment in an infrastructure asset, and must show its Board of Trustees that it has selected the most potentially profitable investments. It is being offered 6 alternatives, each of which has reached construction completion, and with 25 years’ concession period remaining. These are:
Project type | Financed by | Gross Investment required | Net Present Value $ | Projected IRR % |
Single toll road | Bank debt | $1m | 80,000 | 13.9 |
Large general Hospital | Bond | $4m | 430,000 | 14.4 |
Metro-system expansion | Bank debt | $3m | 250,000 | 16.0 |
Portfolio of PFI schools | Bank debt | $2m | 230,000 | 14.1 |
Bridge River crossing | Bank debt | $2m | 210,000 | 16.1 |
Skyscraper | Bond | $2m | 190,000 | 15.7 |
You are the projects’ financial advisor retained by the Trustees. Advise them (explaining your reasons);
2. Now consider a significant new PPP project (financed wholly by the private sector) where for some reason construction completion is delayed. Critically analyze and describe the consequences for the “D&B”/”Tier 1” Contractor, of the following situations:
- a time overrun extending past the projected Completion Date
- what the “penalties” might be on the [Tier 1] Contractor, and importantly also explain why “penalties” is written here in quotes; and
- which parties might seek remedies and apply or enforce these “penalties” at each stage in a progressive delay;
- giving an indication of how large they might be and why; and demonstrate how this would be calculated and applied.
Accounting Principles
ISBN: 978-0470533475
9th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso