BBAC602 Group Assignment_25 – T42015.docx Page 1 BUSINESS AND CORPORATE
FINANCE (BBAC602) ASSIGNMENT WRITTEN REPORT DUE: WEEK 5 SESSION 2
PRESENTATION AND ORAL EXAM: WEEK 6 SESSION 1 Learning Outcome Assessed: a
– f Group Size: 2 Members Weighting: 25% (Report 15% + Oral Exam /
Presentation 10%) Written Report Case Study Analysis (2000 words)
Bidding for a large infrastructure project – Understanding project
evaluation techniques, building a project evaluation model and
determining the capital structure You are the senior portfolio manager
of a major infrastructure fund, Future Infrastructure Group that is
invited to participate in a Public Private Partnership transaction that
involves building a major toll road connecting the Eastern Freeway with
the other major toll roads. Currently, traffic from the Eastern Freeway
flows into a busy arterial road causing significant congestion. The new
toll road will provide an important link in the overall traffic network.
Your infrastructure fund has formed a bid consortium that includes a
global road building company, a road maintenance and services company, a
major Australian bank and a consulting firm. The State Government will
provide a concession agreement that allows the winning bidder (i.e.
concessionaire) to collect tolls at a regulated rate over the concession
period of 25 years from the date of completion of the project. In
recognition of the current tight credit conditions, the State Government
has agreed to provide the concessionaire with a “credit wrap” (or
financial guarantee) of up a total of 30% of the project value for debt
facilities to include project finance, working capital facilities, and
infrastructure bonds as outlined below: 1. For an amount not exceeding
10% of the project value – 10 years 2. For an amount not exceeding 10%
of the project value – 5 years 3. For an amount not exceeding 10% of the
project value – 3 years. The concession agreement required the bid
group to contribute equity of a minimum of 30%. For the purposes of this
exercise you may assume the following: 1. Once the government guarantee
period is over, the loan pricing reverts to the standard interest rate
for BBB rated debt 2. All loans are repaid by way of a single bullet
repayment in Year 27 BBAC602 Group Assignment_25 – T42015.docx Page 2 It
is estimated that the construction will take around two years and for
the purposes of our analysis, we assume that all cash – flows during a
period occur at the end of the period. The State Government is rated AAA
by global rating agency Standard & Poors and your banking partner
estimates that the residual project debt is rated BBB (flat) based on
S&P rating methodology. For the purposes of this analysis you will
assume a “flat term structure” of interest rates or interest rate swap
curve of 10%. Your banking partner has estimated the following credit
spreads over the inter-bank swap rate: 1. AAA rated debt = 0.5 % 2. BBB
rated debt = 2.5% They have offered to provide an interest rate hedge to
lock in the interest rates at this level if deemed appropriate by the
bid team. They would also be willing to offer credit facilities to help
the project lock in any foreign exchange or commodity price risks. Key
parameters of the project as determined by your consultants are outlined
below: Project Costs: Year 0 – Bid Costs capitalised – A$ 5 million
Year 1 – A$ 200 million Year 2 – A$ 250 million Hence the total project
value is estimated at A$ 455 million Interest costs on the bank loan
during the construction process are capitalised and included in the
total amount of A$ 455 million calculated above. Interest costs for the
period of the concession agreement will be based on your capital
structure and type of debt employed. You are also provided with the
following cost structures: 1. Annual Expenses other than Bank Interest
costs – Estimated at A$ 10 per annum 2. Bank Interest Costs – As
calculated by you based on debt structure employed 3. Annual Toll
Receipts as outlined below: • Year 1 of the concession period – A$ 100
million • Year 2 of the concession period – A$ 110 million • Year 3 of
the concession period – A$ 120 million • Year 4 of the concession period
– A$ 130 million • Year 5 onwards to year 25 – A$ 140 million The bid
group has agreed on a internal hurdle rate of 15% for the purposes of
evaluation of this project. In bidding for the project, you are required
to provide the State Government with an estimate of either how much you
expect the State Government to pay you (upfront) as a subsidy or how
much you are willing to pay the State Government in consideration for
taking up the concession agreement. BBAC602 Group Assignment_25 –
T42015.docx Page 3 Note to students: 1. This is a group assignment and
the key focus is on ensuring you understand the financial concepts – You
are required to discuss key issues among yourselves and develop a
detailed excel model for calculating the project NPV. You DO NOT need to
submit your excel spread-sheet as it will be reviewed as part of the
“Presentation and Oral Assessment”. Please incorporate your excel
calculation tables into the word document as a “pdf” or “picture” and
submit a SINGLE pdf document on Moodle. The assignment cover sheet may
be incorporated into the single “pdf” file. 2. Aspects of the assignment
will be discussed during tutorial sessions to assist you in the
learning process. 3. You can also avail the time allocated for student
consultations to get a better understanding of project related issues.
Questions 1. Based on the information provided in the case study,
determine the optimal capital structure, the various financing options
available and the debt maturity profile of the project. Discuss the
merits and limitations of each form of financing proposed. (5 Marks) 2.
Discuss briefly some of the financial market risks associated with the
project. Consider: Interest Rates, Currency and Commodity Risks if any.
How can these be hedged using financial derivatives and what derivative
instruments do you propose to use. (5 Marks) 3. Calculate all cash-flows
of the project and draw a detailed cash-flow diagram for the project
over 25 years. Develop a detailed NPV model in excel showing Cash
Inflows, Cash Outflows and NPV of the project. What is the amount that
you either expect to receive or are willing to pay the State Government
to win this concession? Provide your arguments. (5 Marks) Presentation
and Oral Exams You will be required to present your excel financial
model and recommendations to the lecturer during the tutorial sessions
in Week 5. Students who do not attend this assessment will not get any
of the marks allocated. (10 Marks) BBAC602 Group Assignment_25 –
T42015.docx Page 4 Assignment Marking Guide: The following assignment
criteria are designed to give the student a guide as to what markers are
looking for in the assignment: Written Report and presentation – 5
Marks per Question – Total 25 Marks 1. Quality of independent research
and analysis undertaken and overall presentation, formatting and
referencing of the report 2. Evidence of understanding of the various
Project evaluation and risk management techniques. 3. Creativity and
Innovation (4 – 5 Marks) – A very high level of achievement in all three
key assessment criteria (3.5Marks) – A high level of achievement in all
three key assessment criteria (3 Marks) – A high (or better) level of
achievement in two criteria and a good level of achievement in the third
criteria (2.5 Marks) – A good level of achievement in all three
criteria (2 Marks) – A good level of achievement in two criteria and a
light level of achievement in the third criteria (1.5 Marks) – A light
level of achievement in all three criteria (1 Mark) – A light level of
achievement in two criteria and a very light level of achievement in the
third criteria (0.5 Mark) – A very light level of understanding in all
three criteria (0 Marks) – No attempt was made to present &
estimate. Please familiarise yourself with the CIC Plagiarism
Paraphrasing Reference document available on Moodle before submitting
this assignment on Moodle.
Discussion Forum: Counterarguments (Should pit bull terriers be banned in my community) You created a question about the topic for your W6 Rough Draft. For this discussion, you will give an answer to that question in the form of a thesis statement. "Dieting Makes People Fat" Main Post: Share your thesis statement with your classmates. Please note: As with last week’s discussion, nothing here is set in stone. Be open to changing everything about your topic, including your position and audience, as you research it and get feedback from your classmates. Topic + Position/Purpose + Supporting Points =Thesis Statement Example: Suppose the question you posed in the Week 5 discussion was something like, “Should pit bull terriers be banned in my community?” After doing some preliminary research, you have concluded that pit bulls, if raised properly, are no more dangerous than other breeds of dogs. Your thesis statement can be something like, “Pitbulls should not be banned
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