Population increase in northern Virginia requires new road constructions and repairs annually from 2018. More public schools will be also needed by 2027. The state of Virginia is considering an option to meet the needs for more roads and schools. The option is building toll roads financed by sales tax now and building more schools in 2027 which will be financed by revenue from toll roads.

Information:

Toll road building costs

2018: $25 million

2019: $25 million

2020: $20 million

Annual expected number of toll road users/vehicles per day: 22,000 from 2021.

User charge = $3.00

Annual expected cost of new road constructions and repairs is $5 million from 2021.

Required school investment in 2027: $60 million (in 2018 $).

a. First, find out a discount rate that you believe is appropriate for your analysis and explain how you came up with the discount rate you selected. Any reference(s)?

b. Will the project of building toll roads bring enough financial resource for school investment in 2027? If not, calculate the user charge (toll charge) that will bring enough financial resources for school investment in 2027.