A toll road developer is planning to submit a contract to upgrade, operate and maintain (UOM) an existing toll road at a cost of USD30 million. The UOM contract is for a period of 5 years. Upon completion of the upgrading, annual toll collection is projected to be USD15 million per year. Annual operating expenses is expected to be USD 6.0 million per year and annual maintenance capital expenditure is USD500,000. The developer has taken up a loan USD10 million and the annual interest servicing is USD500,000. Assume annual tax payable and annual depreciation charge are USD500,000 and USD1.5 million respectively. Assume there is no net working capital requirement. If there is no toll revenue collection at all, the project company will incur a total loss of USD23.5 million per year. Breakeven toll revenue (to cover annual operating cost, annual interest servicing and annual loan repayment) is USD8.5 million. Illustrate by way of a diagram the idea of project finance loan as an option to hedge project downside risk for the project company.

Determine if the project developer should take on this venture. The required investment return is 10 % per annum. Show your computation.