KA6564 Assignment 3

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  • 1. TITLE : URBAN TRANSPORTATION ASSIGNMENT 3NAME : MUHAMMAD BIN RAMLANMATRIX NO : P 57600SUBJECT : KKKA 6564YEAR : 2011/2012LECTURER : PROF IR DR RIZA ATIQ O.K. RAHMAT Page 1 of 10
  • 2. QUESTION ASSIGNMENT 31. A state government has a plan to construct a 25 km road. The project cost is estimated to be RM 900,000,000.00 and the project duration is 2 years. Direct benefits of the proposed road are reduction in vehicle operating cost and travel time which is estimated to be 1,400,000 vehicle-km/day and 35,000 men-hr/day. Average travel time value is RM 25.00/hr and the vehicle operating cost is 25 cents per kilometer. Both reductions are forecasted to be increasing steadily at the rate of 9% per annum. Road maintenance cost is estimated to be RM 2,990,000 per annum and will keep on increasing at the rate of 10.5% per annum. The project will be finance by the federal government and the payback period is 12 years. Discounted rate is 8%. Ascertain whether the project is economically viable.2. An 95 km highway is planned to be constructed between a new industrial estate with a port. Estimated cost of the project is RM 998 million and the construction duration is 2 years. The highway project will be privatised and the concession period is 17 years. Toll collection is forecasted at about RM 150 million during the first year of its operation and is expected to increase at a rate of 9% per annum. Maintenance cost and operation cost are about RM 6.7 million per annum and are expected to grow at a rate of 6.5% per annum. The concession holder will finance 10% of the project cost and 90% will be financed by a local bank based on non-interest scheme (Al-bai bitaman ajil). Financing period is 12 years and repayment will start after the highway is opened for traffic or two years after signing the concession agreement, whichever is earlier. The repayment is RM 13,800,000.00 per month. (Use 333 annualisation factor and assume the traffic volume is uniform throughout the year) Page 2 of 10
  • 3. (a) Compute NPV cost and NPV income for the concession period. Use 8% discount rate. (8 marks).(b) Compute Benefit Cost ratio. (2 marks).(c) Prepare computation table as in (a) with 19% discount rate. (8 marks).(d) Compute internal rate of return (IRR). (2 marks). Page 3 of 10
  • 4. SOLUTION ASSIGNMENT 3Question 1Given:Cost of the project : RM 900,000,000.00Construction period : 2 yearsConstruction cost per year : RM 450,000,000.00Project payback period : 12 yearsDiscount rate (8% per year) : 0.08Benefit on vehicle operating cost (VOC);Vehicle operating : 1,400,000 vehicle-km/dayOperating cost : RM 0.25/kmVOC reduction : RM 350,000.00/dayBenefit on time saving;User : 35,000.00 men-hr/dayTime value : RM25/hrTime saving value : RM 875,000.00/dayTotal Benefit per year ;Total VOC reducing and time saving : 1,225,000.00For per annum (365days) : 447,125,000.00Increase rate (9% per year) : 0.09Maintenance cost;Cost per year : RM 2,990,000.00Increase rate (10.5% per year) : 0.105 Page 4 of 10
  • 5. Years Construction cost Maintenance cost NPV cost (C) Total benefit NPV Benefit (B) Cost Stream 0 450,000,000.00 450,000,000.00 (450,000,000.00) 1 450,000,000.00 416,666,666.70 (450,000,000.00) 2 2,990,000.00 2,563,443.07 7,125,000.00 383,337,620.03 444,135,000.00 3 3,303,950.00 2,622,782.03 487,366,250.00 386,887,042.44 484,062,300.00 4 3,650,864.75 2,683,494.58 531,229,212.50 390,469,329.87 527,578,347.75 5 4,034,205.55 2,745,612.51 579,039,841.63 394,084,786.62 575,005,636.08 6 4,457,797.13 2,809,168.35 631,153,427.37 397,733,719.83 626,695,630.24 7 4,925,865.83 2,874,195.40 687,957,235.83 401,416,439.46 683,031,370.00 8 5,443,081.74 2,940,727.70 749,873,387.06 405,133,258.34 744,430,305.32 9 6,014,605.33 3,008,800.10 817,361,991.90 408,884,492.22 811,347,386.57 10 6,646,138.88 3,078,448.25 890,924,571.17 412,670,459.74 884,278,432.28 11 7,343,983.47 3,149,708.63 971,107,782.57 416,491,482.51 963,763,799.10 895,143,047.30 3,997,108,631.06 (B/C) Benefit/Cost-ratio 4.47 IRR = 47% Page 5 of 10
  • 6. Using discount rate of 47%: Years Construction cost Maintenance cost NPV cost (C) Total benefit NPV Benefit (B) Cost Stream 0 450,000,000.00 450,000,000.00 (450000000.00) 1 450,000,000.00 306,122,448.98 (450000000.00) 2 2,990,000.00 1,383,682.72 447,125,000.00 206,916,099.77 444,135,000.00 3 3,303,950.00 1,040,115.25 487,366,250.00 153,427,584.19 484,062,300.00 4 3,650,864.75 781,855.34 531,229,212.50 113,766,031.81 527,578,347.75 5 4,034,205.55 587,721.19 579,039,841.63 84,357,125.63 575,005,636.08 6 4,457,797.13 441,790.42 631,153,427.37 62,550,521.72 626,695,630.24 7 4,925,865.83 332,094.16 687,957,235.83 46,380,999.10 683,031,370.00 8 5,443,081.74 249,635.40 749,873,387.06 34,391,353.08 744,430,305.32 9 6,014,605.33 187,651.10 817,361,991.90 25,501,071.33 811,347,386.57 10 6,646,138.88 141,057.46 890,924,571.17 18,908,957.65 884,278,432.28 11 7,343,983.47 106,032.99 971,107,782.57 14,020,927.78 963,763,799.10 761,374,085.01 760,220,672.06 (B/C) Benefit/Cost-ratio 1.00 IRR = 47%When the B/C= 1 means the IRR = Discount rate = 47%. Therefore, this project is economically viable because the IRR is very high. Page 6 of 10
  • 7. Question 2Given:Length of Highway : 95kmProject Cost : RM 998,000,000.00Concession period : 17 yearsToll Revenue : RM 150,000,000.00/yearToll Revenue growth (9% per year) : 0.09Construction period : 2 yearsMaintenance cost : RM 6,700,000.00/yearsMaintenance cost growth (6.5% per year) : 0.065Financing by company : 10%Financing by bank : 90%Financing duration : 12yearsRepayment to bank : RM 13,800,000.00/month @ RM 165,600,000.00/year Page 7 of 10
  • 8. (a) Compute NPV cost and NPV income for the concession period. Use 8% discount rate. (8 marks).Years Construction cost Repayment NPV cost (C) Total benefit NPV Benefit (B) Cost Stream 0 499,000,000.00 499,000,000.00 (499,000,000.00) 1 499,000,000.00 462,037,037.04 (499,000,000.00) 2 6,700,000.00 165,600,000.00 147,719,478.74 150,000,000.00 128,600,823.05 (22,300,000.00) 3 7,135,500.00 165,600,000.00 137,123,009.07 163,500,000.00 129,791,571.41 (9,235,500.00) 4 7,599,307.50 165,600,000.00 127,306,661.50 178,215,000.00 130,993,345.22 5,015,692.50 5 8,093,262.49 165,600,000.00 118,212,715.89 194,254,350.00 132,206,246.56 20,561,087.51 6 8,619,324.55 165,600,000.00 109,787,726.75 211,737,241.50 133,430,378.47 37,517,916.95 7 9,179,580.64 165,600,000.00 101,982,206.59 230,793,593.24 134,665,844.94 56,014,012.59 8 9,776,253.39 165,600,000.00 94,750,332.79 251,565,016.63 135,912,750.91 76,188,763.24 9 10,411,709.86 165,600,000.00 88,049,676.06 274,205,868.12 137,171,202.31 98,194,158.27 10 11,088,471.00 165,600,000.00 81,840,949.19 298,884,396.25 138,441,306.03 122,195,925.26 11 11,809,221.61 165,600,000.00 76,087,774.24 325,783,991.92 139,723,169.98 148,374,770.30 12 12,576,821.02 165,600,000.00 70,756,467.10 355,104,551.19 141,016,903.03 176,927,730.17 13 13,394,314.38 165,600,000.00 65,815,837.93 387,063,960.80 142,322,615.10 208,069,646.41 14 14,264,944.82 4,856,657.97 421,899,717.27 143,640,417.09 407,634,772.45 15 15,192,166.23 4,789,204.38 459,870,691.82 144,970,420.95 444,678,525.59 16 16,179,657.04 4,722,687.66 501,259,054.09 146,312,739.67 485,079,397.05 17 17,231,334.74 4,657,094.77 546,372,368.95 147,667,487.26 529,141,034.21 2,199,495,517.64 2,206,867,221.98 (B/C) Benefit/Cost-ratio 1.00 IRR = 8% Page 8 of 10
  • 9. (b) Compute Benefit Cost ratio. (2 marks).Benefit/cost ratio = 2,206,867,221.98 / 2,199,495,517.64 = 1.00(c) Prepare computation table as in (a) with 19% discount rate. (8 marks).Years Construction cost Repayment NPV cost (C) Total benefit NPV Benefit (B) Cost Stream 0 499,000,000.00 499,000,000.00 (499,000,000.00) 1 499,000,000.00 419,327,731.09 (499,000,000.00) 2 6,700,000.00 165,600,000.00 121,672,198.29 150,000,000.00 105,924,722.83 (22,300,000.00) 3 7,135,500.00 165,600,000.00 102,503,977.37 163,500,000.00 97,023,485.62 (9,235,500.00) 4 7,599,307.50 165,600,000.00 86,369,082.42 178,215,000.00 88,870,251.53 5,015,692.50 5 8,093,262.49 165,600,000.00 72,786,052.38 194,254,350.00 81,402,163.17 20,561,087.51 6 8,619,324.55 165,600,000.00 61,349,998.62 211,737,241.50 74,561,645.25 37,517,916.95 7 9,179,580.64 165,600,000.00 51,720,410.51 230,793,593.24 68,295,960.78 56,014,012.59 8 9,776,253.39 165,600,000.00 43,610,904.76 251,565,016.63 62,556,804.41 76,188,763.24 9 10,411,709.86 165,600,000.00 36,780,608.45 274,205,868.12 57,299,930.09 98,194,158.27 10 11,088,471.00 165,600,000.00 31,026,915.19 298,884,396.25 52,484,809.92 122,195,925.26 11 11,809,221.61 165,600,000.00 26,179,395.56 325,783,991.92 48,074,321.69 148,374,770.30 12 12,576,821.02 165,600,000.00 22,094,677.63 355,104,551.19 44,034,462.72 176,927,730.17 13 13,394,314.38 165,600,000.00 18,652,143.07 387,063,960.80 40,334,087.70 208,069,646.41 14 14,264,944.82 1,249,144.37 421,899,717.27 36,944,668.57 407,634,772.45 15 15,192,166.23 1,117,931.73 459,870,691.82 33,840,074.57 444,678,525.59 16 16,179,657.04 1,000,501.93 501,259,054.09 30,996,370.83 485,079,397.05 17 17,231,334.74 895,407.19 546,372,368.95 28,391,633.78 529,141,034.21 1,597,337,080.55 951,035,393.46 (B/C) Benefit/Cost-ratio 0.60 IRR = 8% Page 9 of 10
  • 10. (d) Compute internal rate of return (IRR). (2 marks).When the B/C= 1 means the IRR = Discount rate = 8% (As per question 2 (a)) Page 10 of 10