Deciding in Financing Alterna/ves Case: Na/onal Rail Passenger Corpora/on (Amtrak): Acela Financing
1
Balance Sheet (Values in Million of USD) Fy Ending Fy Ending Sept 30, 1998 Sept 30, 1998 Current Assets Cash and equivalents 274.7 4 Temporary cash investments 409.7 6 Account receivable, net 88.7 1 Mtaerials and supplies 91.6 1 Other current assets 3.4 0 Total current assets 868.1 12 Property, plant and equipment 9456.4 129 Less: Accumulated depreciation -3106.9 -43 Net property, plant and equipment 6349.5 87 Other assets and deffered charges 87.6 1 Total assets 7305.2 100
Balance Sheet (Values in Million of USD) Fy Ending Fy Ending Sept 30, 1998 Sept 30, 1998 Current liabilities Accounts payable Accrued expenses and other current liabilities Deffered ticket revenue Current maturities of LT debt and capital-lease obligations Total current liabilities LT debt and capital lease obligations Capital lease obligations Equipment and other debt Other liabilities and deffered credit Deferred federal payments Casuality reserves Postretirement employee-benefits obligation Environmental reserve Advances from railroads and commuter agencies Other Total liabilities Capitalization Preffered stock Common stock Other paid-in capital Accumulated comprehensive loss Total liabilities and capitalization
270.8 186.7 61.4 102.2 621.1
4 3 1 1 9
1213.1 322.5 1535.6
17 4 21
457 136.2 118.4 35.4 20.6 1.5 769.1 2925.8
6 2 2 0 0 0 11 40
10939.7 93.9 6471.3 -13125.4 4379.5 7305.3
150 1 89 -180 60 2 100
Income Statement (Values in Millions of USD) Fiscal Year Ending Sept. 30 1994 1995 1996 1997 1998 Revenues Passenger-related and other Commuter Reimbursable Federal payments Total revenues Expenses Salaries, wage and benefits Train operations Facility and office related Maintenance-of-way goods and services Advertising and sales Interest Depreciation and amortization Other One-time charges/(gains) Total expenses Operating income/(loss) Exclude federal payments and related interest Operating loss restated Federal grants Federal operating grant Excess railroad retirement taxes Federal capital - interest Federal capital - progressive overhaul and other Total federal grants Net loss
1152 184 77
1177 213 107
1213 1341 1392 234 242 260 108 91 91 542 1413 1497 1555 1674 2285 1330 1241 1236 1299 1448 358 321 321 365 356 153 172 181 187 190 45 73 59 46 52 91 90 109 98 102 185 144 149 160 181 245 230 238 242 294 83 34 25 39 15 -244 2246 2305 2318 2436 2638 -833 -808 -763 -762 -353 577 -833 -808 -763 -762 -930 352 150
392 150
285 120
223 202 142 142 42 36 37 82 502 542 441 444 426 -331 -266 -322 -318 -504
Income Statement (Values in Millions of USD) Fiscal Year Ending Sept. 30 1994 1995 1996 1997 1998 Revenues Passenger-related and other Commuter Reimbursable Federal payments Total revenues Expenses Salaries, wage and benefits Train operations Facility and office related Maintenance-of-way goods and services Advertising and sales Interest Depreciation and amortization Other One-time charges/(gains) Total expenses Operating income/(loss) Exclude federal payments and related interest Operating loss restated Federal grants Federal operating grant Excess railroad retirement taxes Federal capital - interest Federal capital - progressive overhaul and other Total federal grants Net loss
82 13 5
79 14 7
78 15 7
80 14 5
100
100
100
100
61 11 4 24 100
94 25 11 3 6 13 17 6 -17 159 -59
83 21 11 5 6 10 15 2
79 21 12 4 7 10 15 2
78 22 11 3 6 10 14 2
63 16 8 2 4 8 13 1
154 -54
149 -49
146 -46
-59
-54
-49
-46
115 -15 25 -41
25 11
26 10
18 8
36 -18
2 28 -21
13 8 3 2 27 -193
36 -23
9 6 4 19 -22
Equipment
No. High-speed locomotives 15 Train sets 20
Es/mated life: 25 years
Residual values: ~15% of original equipment cost
Cost Aggregate Cost 7,161,300 107,419,500 32,129,050 642,581,000 Total 750,000,500 Deprecia/on as per.., • Accoun/ng purpose: straight-‐line • Tax purposes: 7-‐year MACRS
Funds to be arranged for $267.9 million (Locomo/ves: 6 and Train sets: 7)
4
BNCYF’s Leveraged-‐Lease proposal
?
Borrow Government Funding 5
Benefits
Leasing 100% financing
Offers cash flow benefits
Off balance sheet financing
Avoidance of loan covenants
Tax planning
Crea/on of working capital
Hedge against risk of infla/on and obsolescence
Fast and flexible financing
To over come monopoly act
Used in non-‐ priority sector and service sector
Possibility of evading capital-‐ expenditures
To avoid capital-‐ approval procedures 6
No cost on Benefits asset disposal Provides term of use of equipment
Preserves line of credit Permits accurate budge/ng
No Asset Management 7
Crea/ng More Value for Lease
Tax rate differences between lessor and lessee
Realizing deprecia/on deduc/on by lessor and lessee
Asset acquisi/on and maintenance cost – specializa/on or scale of economies
Realizing salvage values – superiority of property knowledge
Leverage abili/es between lessor and lessee – difference in interest deduc/bility
Lifle op/ons holding significant value
Lessor can purchase equipment more cost effec/vely; tax deduc/ons for Interest and Deprecia/on
Tailored to meet lessor’s needs – heavier payments in Dec than in June 8
Benefits to Lessor
Addi/onal financial product
Reduces risk
Increases profitability
Accelerates sales
Higher leverage [Max. of 10:1]
No gesta/on period
Low cost of opera/ons 9
Federal Sources
Can use fed fund for equipment purchases
No federal subsidies for opera/ng expenses
Congress agreed to fund for capital appropria/ons
Fed grants considered as premium and precious commodity
Preferred to use grant money to fund capital projects that could not be easily and cost-‐effec/vely financed such as.., • Safety • Right-‐of-‐way • Infrastructure-‐related projects • Major overhauls
Train sets and other rolling stock, could be very efficiently financed through capital markets
10
Terms of Borrowing
Major bank offered to underwrite a bond
Term: 20-‐year
Coupon: 6.75 percent per annum
Semiannual payments: $12.303 million
Payment beginning: Dec 1999
Collateral for the loan: locomo/ves and trains sets
Drawback • Had recently issued debt • Public market might already be saturated with Amtrak paper 11
BNY Capital Funding LLC's Proposed Leveraged-Lease Strcuture
Leveraged Lease
Lessee Equipment
Equity investors put up $53.6 million (20% of equipment value) in exchange for lease payments after debt service
Equity Investor BNY Capital Funding, LLC
Lease Payments
Proposed by: BNCYF (Wholly owned subsidiary of the Bank of New York) Lenders advance $214.3 million (80% of equipment value) in exchange for first claim on lease payments on locomotives and trains ets
Owner Trustee Wilmington Trust
Lender Export Development Corporation (EDC) of Canada
Lessor: BNCYF (BNCYF: 20% of required funds; would receive lease payments only aper debtor had been paid) Sole lender and debt provider: Export Development Corpora/on (EDC) of Canada (EDC: 80% of required funds)
12
Leveraged Lease Basic documents used in Leveraged Lease >
Par/cipa/on agreement – signed by all par/es
Trust agreement
Indenture trust
Lease agreement – for tax shield associated with asset ownership and residual value of asset
Assets Suitable for Leveraged Lease > Airplane
Satellites
Ships
Rails
Off-‐shore drinking
Nuclear machines
Power genera/on plants
Large chemical plants
Gas pipe lines
SD of market-‐value fluctua2ons of train sets and locomo2ves: 25% 17-‐year risk-‐free rate: 5.78% Amtrak WACC: 11.8%
BNY Capital Funding LLC's Proposed Lease-Payment Schedule (in Dollars) Date Due Amount 1999 June …. Dec $200,102 2000 June $3,761,228 Dec $7,965,652 2001 June $10,022,594 Dec $10,316,948 2002 June $8,617,634 Dec $10,360,645 2003 June $9,828,570 Dec $10,367,985 2004 June $8,607,823 Dec $10,418,573 2005 June $9,683,063 Dec $10,435,186 2006 June $8,580,151 Dec $11,599,993 2007 June $7,338,339 Dec $11,468,211 2008 June $9,475,208 Dec $15,792,709 2009 June $7,765,741 Dec $20,224,322 2010 June $5,067,035 Dec $15,872,556 2011 June $4,121,823 Dec $22,807,129 2012 June $3,336,587 Dec $23,645,133 2013 June $2,662,913 Dec $24,055,367 2014 June $1,957,919 Dec $20,017,608 2015 June $6,067,613 Dec $6,287,652 2016 June $12,292,315 Dec $21,394,788 2017 June $6,551,924 Dec $18,107,167 2018 June $8,612,133 Dec $13,469,295 2019 June $8,864,543 Dec $6,654,238 2020 June $2,035,748 Dec $1
13
Financial Lease
Types >
Direct leases -‐ Lessor purchased equipment or asset and rented it out to lessee
Sale-‐and-‐leaseback
Leveraged leases
Cross border (interna/onal) lease
Foreign to foreign lease
Criteria Total lease rental > asset price
Irrevocable by both par/es
Also called ‘capital lease’
Lease period = life of asset
Purpose: financing an asset
Lessee bears: maintenance, insurance, taxes
Ownership test: ownership transferred to lessee at the end of lease
Alterna/ve ownership test: lessee has right to buy asset at a price substan/ally below fair market price
Economic life test: lease term >= 75% of es/mated economic life of the asset
Value test: PV of minimum lease payment >= 90% of fair market value of asset at the /me of lease
Min lease rental = rate ~ equal to lessee marginal cost of debt Payout will include; asset cost, cost of financing, lessor overhead, rate of return Similar to mortgage loans 14
Opera/ng Lease No fixed future commitment
Cancelable by lessee on no/ce
Purpose: using an asset
Lessor bears: maintenance, insurance, taxes 15
Direct Lease Hybrid of opera/ng and financial lease
Payout will not include; Repairs, Maintenance, and Taxes
Dura/on: 3 or more years
Lessor holds the /tle
At expira/on: lessee may renew or purchase
Full payout
16
Types of Leases Master lease: blanket leasing
Percentage lease: flat rental + addi/onal rental over and above a revenue
Wet and dry lease – used in airline industry
Triple net lease – net of insurance, maintenance, taxes….
Closed end and open end lease – ownership possibili/es opened to lessee
Swap lease – exchange assets in need of major repairs
Full pay-‐out lease
True lease – fully goes with the local rules and regula/ons of a country
Wash lease – tax benefit transferred to investor
Upgrade lease – used in obsolescence
Capital lease – to transfer ownership to lessee at the end of lease term
Employee lease – transferring employees to Lessor and leasing it back
17
Lease vs. Buying Increases company’s debt capacity
Public market is saturated with Amtrak debt
Also includes interest component
Investors will not recognize a financial lease liability as a form of debt? Liabili/es: PV of financial lease payments and Assets: PV of financial lease payments
Possibility of increasing book income buy avoiding deprecia/on and interest? -‐ Lease payments includes deprecia/on and interest
In world of no taxes; leasing = borrow-‐and-‐buy
Lease amount higher or lower indifference point would result in value destruc/on for both par/es
18
NPV Analysis of Lease
Cash flows
Discount rate
• Ouwlow: lease payments • No tax shields on lease payments – Amtrak has no tax benefits • Not en/tled for residual value of $40.2 million
• WACC: 11.8% • Interest rate: 6.75% -‐ appropriate rate to be used
19
Cash Flow Analysis of Lease Alternative (in Million Dollars) Discount rate Tax rate After-tax interest rate Lease payments Tax shield on lease payments After-tax lease payments Residual value Total cash flows Discounted flows @ K D Lease payments Tax shield on lease payments After-tax lease payments Residual value Total cash flows Discounted flows @ K D Lease payments Tax shield on lease payments After-tax lease payments Residual value Total cash flows Discounted flows @ K D Time Period Lease payments Tax shield on lease payments After-tax lease payments Residual value Total cash flows Discounted flows @ K D Time Period Lease payments Tax shield on lease payments After-tax lease payments Residual value Total cash flows Discounted flows @ K D NPV of Lease Alternative
6.75% 0.00% 6.75% 0
1 (0.20) 0.00 (0.20)
2 (3.76) 0.00 (3.76)
3 (7.97) 0.00 (7.97)
4 (10.02) 0.00 (10.02)
5 (10.32) 0.00 (10.32)
6 (8.62) 0.00 (8.62)
7 (10.36) 0.00 (10.36)
8 (9.83) 0.00 (9.83)
9 (10.37) 0.00 (10.37)
10 (8.61) 0.00 (8.61)
(0.20) (0.19) 11 (10.42) 0.00 (10.42)
(3.76) (3.52) 12 (9.68) 0.00 (9.68)
(7.97) (7.21) 13 (10.44) 0.00 (10.44)
(10.02) (8.78) 14 (8.58) 0.00 (8.58)
(10.32) (8.74) 15 (11.60) 0.00 (11.60)
(8.62) (7.06) 16 (7.34) 0.00 (7.34)
(10.36) (8.21) 17 (11.47) 0.00 (11.47)
(9.83) (7.54) 18 (9.48) 0.00 (9.48)
(10.37) (7.69) 19 (15.79) 0.00 (15.79)
(8.61) (6.18) 20 (7.77) 0.00 (7.77)
(10.42) (7.23) 21 (20.22) 0.00 (20.22)
(9.68) (6.50) 22 (5.07) 0.00 (5.07)
(10.44) (6.78) 23 (15.87) 0.00 (15.87)
(8.58) (5.39) 24 (4.12) 0.00 (4.12)
(11.60) (7.05) 25 (22.81) 0.00 (22.81)
(7.34) (4.31) 26 (3.34) 0.00 (3.34)
(11.47) (6.52) 27 (23.65) 0.00 (23.65)
(9.48) (5.21) 28 (2.66) 0.00 (2.66)
(15.79) (8.41) 29 (24.06) 0.00 (24.06)
(7.77) (4.00) 30 (1.96) 0.00 (1.96)
(20.22) (10.07) 31 (20.02) 0.00 (20.02)
(5.07) (2.44) 32 (6.07) 0.00 (6.07)
(15.87) (7.40) 33 (6.29) 0.00 (6.29)
(4.12) (1.86) 34 (12.29) 0.00 (12.29)
(22.81) (9.95) 35 (21.39) 0.00 (21.39)
(3.34) (1.41) 36 (6.55) 0.00 (6.55)
(23.65) (9.65) 37 (18.11) 0.00 (18.11)
(2.66) (1.05) 38 (8.61) 0.00 (8.61)
(24.06) (9.19) 39 (13.47) 0.00 (13.47)
(1.96) (0.72) 40 (8.86) 0.00 (8.86)
(20.02) (7.15) 41 (6.65) 0.00 (6.65)
(6.07) (2.10) 42 (2.04) 0.00 (2.04)
(6.29) (2.10) 43 (0.00) 0.00 (0.00)
(12.29) (3.98) 44
(21.39) (6.70) 45
(6.55) (1.98) 46
(18.11) (5.30) 47
(8.61) (2.44) 48
(13.47) (3.69) 49
(8.86) (2.35) 50
(6.65) (1.71)
(2.04) (0.50)
(0.00) (0.00)
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
(220.26)
20
Discount rate Tax rate After-tax interest rate Useful life of equipment Debt Purchase of equipment Principal repayment Interest expense Interest tax shields Depreciation tax shield Residual value Total cash flows Discounted flows @ KD Principal repayment Interest expense Interest tax shields Depreciation tax shield Residual value Total cash flows Discounted flows @ KD Principal repayment Interest expense Interest tax shields Depreciation tax shield Residual value Total cash flows Discounted flows @ KD Principal repayment Interest expense Interest tax shields Depreciation tax shield Residual value Total cash flows Discounted flows @ KD Principal repayment Interest expense Interest tax shields Depreciation tax shield Residual value Total cash flows Discounted flows @ KD NPV of Borrow-and-Buy
Cash Flow Analysis of Borrow-and-Buy Alternative (In Million Dollars) 6.75% 0.00% 6.75% 25 0 1 2 3 4 5 6 7 8 267.90 (267.90) (3.26) (3.37) (3.49) (3.60) (3.72) (3.85) (3.98) (4.11) (9.04) (8.93) (8.82) (8.70) (8.58) (8.45) (8.32) (8.19) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
9
10
(4.25) (8.05) 0.00 0.00
(4.40) (7.91) 0.00 0.00
(12.30) (11.90) 11 (4.55) (7.76) 0.00 0.00
(12.30) (11.51) 12 (4.70) (7.60) 0.00 0.00
(12.30) (11.14) 13 (4.86) (7.45) 0.00 0.00
(12.30) (10.77) 14 (5.02) (7.28) 0.00 0.00
(12.30) (10.42) 15 (5.19) (7.11) 0.00
(12.30) (10.08) 16 (5.37) (6.94) 0.00
(12.30) (9.75) 17 (5.55) (6.76) 0.00
(12.30) (9.43) 18 (5.73) (6.57) 0.00
(12.30) (9.13) 19 (5.93) (6.38) 0.00
(12.30) (8.83) 20 (6.13) (6.18) 0.00
(12.30) (8.54) 21 (6.33) (5.97) 0.00
(12.30) (8.26) 22 (6.55) (5.75) 0.00
(12.30) (7.99) 23 (6.77) (5.53) 0.00
(12.30) (7.73) 24 (7.00) (5.31) 0.00
(12.30) (7.48) 25 (7.23) (5.07) 0.00
(12.30) (7.23) 26 (7.48) (4.83) 0.00
(12.30) (7.00) 27 (7.73) (4.57) 0.00
(12.30) (6.77) 28 (7.99) (4.31) 0.00
(12.30) (6.55) 29 (8.26) (4.04) 0.00
(12.30) (6.33) 30 (8.54) (3.76) 0.00
(12.30) (6.13) 31 (8.83) (3.48) 0.00
(12.30) (5.93) 32 (9.13) (3.18) 0.00
(12.30) (5.73) 33 (9.43) (2.87) 0.00
(12.30) (5.55) 34 (9.75) (2.55) 0.00
(12.30) (5.37) 35 (10.08) (2.22) 0.00
(12.30) (5.19) 36 (10.42) (1.88) 0.00
(12.30) (5.02) 37 (10.77) (1.53) 0.00
(12.30) (4.86) 38 (11.14) (1.17) 0.00
(12.30) (4.70) 39 (11.51) (0.79) 0.00
(12.30) (4.55) 40 (11.90) (0.40) 0.00
(12.30) (4.40) 41
(12.30) (4.25) 42
(12.30) (4.11) 43
(12.30) (3.98) 44
(12.30) (3.85) 45
(12.30) (3.72) 46
(12.30) (3.60) 47
(12.30) (3.49) 48
(12.30) (3.37) 49
(12.30) (3.26) 50
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
40.19 40.19 7.64
(260.26)
Sums
(102.97)
(73.88)
(53.01)
(38.04)
7.64
22
NPV Analysis of Lease vs. Borrow-‐and-‐ Buy NPV of interest and principal repayment cash flows discounted by cost of debt will result in cost of debt
Difference in NPV
Residual value claim of Amtrak at the end of 25 years
Leasing is superior – cheaper by $40 million
23
NPV Analysis of Lease vs. Borrow-‐and-‐Buy No Tax Lease
Tax Rate of 38%
-$220.26 million -$173.90 million
Borrow-and-buy -$260.26 million -$171.51 million
25
Cash Flow Analysis of Lease Alternative (in Million Dollars) Discount rate Tax rate After-tax interest rate Lease payments Tax shield on lease payments After-tax lease payments Residual value Total cash flows Discounted flows @ K D Lease payments Tax shield on lease payments After-tax lease payments Residual value Total cash flows Discounted flows @ K D Lease payments Tax shield on lease payments After-tax lease payments Residual value Total cash flows Discounted flows @ K D Time Period Lease payments Tax shield on lease payments After-tax lease payments Residual value Total cash flows Discounted flows @ K D Time Period Lease payments Tax shield on lease payments After-tax lease payments Residual value Total cash flows Discounted flows @ K D NPV of Lease Alternative
6.75% 38.00% 4.19% 0
1 (0.20) 0.08 (0.12)
2 (3.76) 1.43 (2.33)
3 (7.97) 3.03 (4.94)
4 (10.02) 3.81 (6.21)
5 (10.32) 3.92 (6.40)
6 (8.62) 3.27 (5.34)
7 (10.36) 3.94 (6.42)
8 (9.83) 3.73 (6.09)
9 (10.37) 3.94 (6.43)
10 (8.61) 3.27 (5.34)
(0.12) (0.12) 11 (10.42) 3.96 (6.46)
(2.33) (2.24) 12 (9.68) 3.68 (6.00)
(4.94) (4.64) 13 (10.44) 3.97 (6.47)
(6.21) (5.72) 14 (8.58) 3.26 (5.32)
(6.40) (5.77) 15 (11.60) 4.41 (7.19)
(5.34) (4.72) 16 (7.34) 2.79 (4.55)
(6.42) (5.56) 17 (11.47) 4.36 (7.11)
(6.09) (5.16) 18 (9.48) 3.60 (5.87)
(6.43) (5.34) 19 (15.79) 6.00 (9.79)
(5.34) (4.34) 20 (7.77) 2.95 (4.81)
(6.46) (5.14) 21 (20.22) 7.69 (12.54)
(6.00) (4.68) 22 (5.07) 1.93 (3.14)
(6.47) (4.94) 23 (15.87) 6.03 (9.84)
(5.32) (3.98) 24 (4.12) 1.57 (2.56)
(7.19) (5.27) 25 (22.81) 8.67 (14.14)
(4.55) (3.27) 26 (3.34) 1.27 (2.07)
(7.11) (5.00) 27 (23.65) 8.99 (14.66)
(5.87) (4.05) 28 (2.66) 1.01 (1.65)
(9.79) (6.61) 29 (24.06) 9.14 (14.91)
(4.81) (3.18) 30 (1.96) 0.74 (1.21)
(12.54) (8.12) 31 (20.02) 7.61 (12.41)
(3.14) (1.99) 32 (6.07) 2.31 (3.76)
(9.84) (6.11) 33 (6.29) 2.39 (3.90)
(2.56) (1.55) 34 (12.29) 4.67 (7.62)
(14.14) (8.43) 35 (21.39) 8.13 (13.26)
(2.07) (1.21) 36 (6.55) 2.49 (4.06)
(14.66) (8.38) 37 (18.11) 6.88 (11.23)
(1.65) (0.92) 38 (8.61) 3.27 (5.34)
(14.91) (8.18) 39 (13.47) 5.12 (8.35)
(1.21) (0.65) 40 (8.86) 3.37 (5.50)
(12.41) (6.53) 41 (6.65) 2.53 (4.13)
(3.76) (1.94) 42 (2.04) 0.77 (1.26)
(3.90) (1.97) 43 (0.00) 0.00 (0.00)
(7.62) (3.77) 44
(13.26) (6.43) 45
(4.06) (1.93) 46
(11.23) (5.22) 47
(5.34) (2.43) 48
(8.35) (3.72) 49
(5.50) (2.40) 50
(4.13) (1.76)
(1.26) (0.53)
(0.00) (0.00)
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
(173.90)
26
Discount rate Tax rate After-tax interest rate Useful life of equipment Debt Purchase of equipment Principal repayment Interest expense Interest tax shields Depreciation tax shield Residual value Total cash flows Discounted flows @ KD Principal repayment Interest expense Interest tax shields Depreciation tax shield Residual value Total cash flows Discounted flows @ KD Principal repayment Interest expense Interest tax shields Depreciation tax shield Residual value Total cash flows Discounted flows @ KD Principal repayment Interest expense Interest tax shields Depreciation tax shield Residual value Total cash flows Discounted flows @ KD Principal repayment Interest expense Interest tax shields Depreciation tax shield Residual value Total cash flows Discounted flows @ KD NPV of Borrow-and-Buy
Cash Flow Analysis of Borrow-and-Buy Alternative (In Million Dollars) 6.75% 38.00% 4.19% 25 0 1 2 3 4 5 6 7 8 267.90 (267.90) (3.26) (3.37) (3.49) (3.60) (3.72) (3.85) (3.98) (4.11) (9.04) (8.93) (8.82) (8.70) (8.58) (8.45) (8.32) (8.19) 3.44 3.39 3.35 3.31 3.26 3.21 3.16 3.11 7.27 7.27 12.47 12.47 8.90 8.90 6.36 6.36
9
10
(4.25) (8.05) 3.06 4.55
(4.40) (7.91) 3.00 4.55
(1.59) (1.56) 11 (4.55) (7.76) 2.95 4.55
(1.64) (1.57) 12 (4.70) (7.60) 2.89 4.55
3.51 3.30 13 (4.86) (7.45) 2.83 2.27
3.47 3.19 14 (5.02) (7.28) 2.77 2.27
(0.14) (0.13) 15 (5.19) (7.11) 2.70
(0.19) (0.17) 16 (5.37) (6.94) 2.64
(2.78) (2.41) 17 (5.55) (6.76) 2.57
(2.83) (2.40) 18 (5.73) (6.57) 2.50
(4.70) (3.90) 19 (5.93) (6.38) 2.42
(4.75) (3.86) 20 (6.13) (6.18) 2.35
(4.81) (3.83) 21 (6.33) (5.97) 2.27
(4.87) (3.80) 22 (6.55) (5.75) 2.19
(7.21) (5.51) 23 (6.77) (5.53) 2.10
(7.27) (5.44) 24 (7.00) (5.31) 2.02
(9.60) (7.04) 25 (7.23) (5.07) 1.93
(9.67) (6.94) 26 (7.48) (4.83) 1.83
(9.74) (6.85) 27 (7.73) (4.57) 1.74
(9.81) (6.76) 28 (7.99) (4.31) 1.64
(9.88) (6.67) 29 (8.26) (4.04) 1.54
(9.96) (6.58) 30 (8.54) (3.76) 1.43
(10.03) (6.50) 31 (8.83) (3.48) 1.32
(10.12) (10.20) (10.29) (10.38) (10.47) (10.57) (10.66) (6.41) (6.33) (6.26) (6.18) (6.11) (6.04) (5.97) 32 33 34 35 36 37 38 (9.13) (9.43) (9.75) (10.08) (10.42) (10.77) (11.14) (3.18) (2.87) (2.55) (2.22) (1.88) (1.53) (1.17) 1.21 1.09 0.97 0.84 0.71 0.58 0.44
(10.98) (5.78) 41
(11.10) (5.72) 42
(11.21) (5.66) 43
(11.33) (5.61) 44
(11.46) (5.55) 45
(11.59) (5.50) 46
(11.72) (5.45) 47
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
(171.51)
(10.77) (10.87) (5.91) (5.84) 39 40 (11.51) (11.90) (0.79) (0.40) 0.30 0.15
(11.86) (12.00) (5.40) (5.35) 48 49
0.00 0.00
0.00 0.00
(12.15) (5.31) 50
40.19 40.19 14.27
Sums
(9.50)
(59.40)
(61.56)
(55.32)
14.27
27
Value of Early-‐Buyout Op/on Amtrak would acquire equipment from BNYCF in 2017 for $126.6 million
Avg yield on 30-‐ year bond: 5.5%
Assumed market equity weight: 100%
Assumed beta: 1
Market risk premium: 6%
Type: simple European call op/on
Valua/on model: BSM
Op/on value is highly sensi/ve to WACC
Cost of equity: 11.5% [referred in case is 11.8%]
28
Underlying as et value $17 Mil ion (Present value of strike price of 126.6 mil ion 18 years from now discounted at WACC 11.8%) Strike price $126.6 Mil ion Purchase price os asset Maturity 18.5 years (June 1999 to Dec 2017) Risk-fre rate 6% 5%to 6% Volatil ty 25% Footnote 10; volatility estimate of locomotive and train cars Option Vlaue (BSM)$2.97 Mil ion 29
Adjusted NPV No Tax
Tax Rate of 38%
Lease
-$217.29 million
-$170.93 million
Borrowand-buy
-$260.26 million
-$171.51 million 30
