4. a) A consortium is preparing a build, own, operate and transfer" proposal for a toll road scheme. The project is estimated to cost $500 million and will take two years to construct. In return, the consortium would operate the finished facility for 15 years. It is anticipated that 15,000 vehicles will be commuting through the proposed road every day if the toll is set at $25 per vehicle per journey. At this traffic volume, the road shall be resurfaced every six years at the cost of $100 million. Besdies, a sum of $20 million / annum and $15 million / annum shall be allowed to cover the interest charge as well as the operation and routine maintenance costs respectively. The toll road will be returned to the government at no charge after the service agreement comes to an end. Calculate the internal rate of return for this scheme. [18 marks] b) While multiple consortia are interested in submitting proposals for this toll road scheme, discuss what factors should the government take into account when awarding a project under the build, own, operate and transfer arrangement? (5 marks] c) On the basis of the government's consideration in (b), justify whether it would be a good idea for the consortium to put forward a higher toll to cover the risk of fall in traffic volume. [2 marks] 4. a) A consortium is preparing a build, own, operate and transfer" proposal for a toll road scheme. The project is estimated to cost $500 million and will take two years to construct. In return, the consortium would operate the finished facility for 15 years. It is anticipated that 15,000 vehicles will be commuting through the proposed road every day if the toll is set at $25 per vehicle per journey. At this traffic volume, the road shall be resurfaced every six years at the cost of $100 million. Besdies, a sum of $20 million / annum and $15 million / annum shall be allowed to cover the interest charge as well as the operation and routine maintenance costs respectively. The toll road will be returned to the government at no charge after the service agreement comes to an end. Calculate the internal rate of return for this scheme. [18 marks] b) While multiple consortia are interested in submitting proposals for this toll road scheme, discuss what factors should the government take into account when awarding a project under the build, own, operate and transfer arrangement? (5 marks] c) On the basis of the government's consideration in (b), justify whether it would be a good idea for the consortium to put forward a higher toll to cover the risk of fall in traffic volume. [2 marks]
