Question

6. You have been asked to determine the toll that should be charged per car for the following situation. A loan is being made to a company that will build a toll road and expects to recoup its loan and the costs of the first 10 years (no profit during this time). The number of cars expected to go through the toll booth is 1,153,325 cars per month. If the value of the construction loan is $50M and the operating and maintenance costs per month are $1.5M, what should the toll per car be to cover all of these costs for 10 years? The nominal annual discount rate is 15%, compounded monthly. [5 points

Answer 1

Calculation toll per car:

= Present value of Total cost outlay/Total cars

Present value of Total cost:

Loan value $50,000,000.00

Present value of Operating cost for 10 years $92,974,270.87   

[1,500,000(1-(1+0.15)^-120 ) / 0.15]

Total Cost $142,974,270.87

therefore toll per car

= $142,974,270.87 / 1153325 x 12 months x 10 years

= $ 1.033 per car