Texas High Speed Project Finance

Case Analysis -

Texas High Speed Rail Corporation

Submitted by:

Rakesh Salecha

Ramanuj

Ramnath Shenoy

Reshma Jain

Nikhil Prabhu

1.) Before performing any DCF analysis, do you except the project to have a positive NPV?

* The economic merits are based on a lot of aggressive assumptions on the demand of the rail road. These assumptions if doesn’t turn out to be true would result in serious loss of traffic which would in turn affect the profitability of the rail road. Air travel is one of the most preferred modes of travel in the US which has its advantages which cannot be replaced by the rail road. The project assumes a revenue stream from interconnected traffic, local traffic and traffic other mode of travel. THRSC targets 70% of these passengers. However these estimates are based on the success of the understanding with Delta and American airlines for sharing of luggage lines and combative check ins. Incase the above partnerships doesn’t work the economics of demand estimated would be seriously hampered.

* THRSC assumes another 35% of traffic from the local segment. This too is based on the presumption that South west airlines would not get into a price war with THRSC. However if Southwest gets into a price war with THRSC, it would lead to significant loss of revenue. Southwest airlines can cross subsidize the routes in Texas which would lead to serious predatory pricing from both the players in the market which in turn can have a very adverse effect on the economics of THRSC.

Hence evaluating the above factors it seems that THRSC might not be a positive NPV project. Hence THRSC should not go ahead with the project.

2.) What is your estimate of the project’s weighted cost of capital at its sully funded capital structure?

Type of Capital | Total Amount contributed | Percent of total Capital | Pre tax cost | 38% after tax cost | WACC contribution |

  |   |   |   |   |   |

Tax Exempt Debt | 1900 | 27.28 | 8.75 | 5.425 |...