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You are the financial manager of the Crossrail 1 project inLondon. The Board overseeing the project, acting on behalf of theUK Government, has asked you to provide a financial analysis of theproject for business planning purposes. With two years to go beforethe commencement of train operations, you have assembled the mostrecent estimates of the capital investment cost and net revenues,which were forecast 1 year ago. While the user benefits and ticketrevenues are assumed to remain the same each year of the 60-yearuseful life, it is anticipated that maintenance costs will behigher in the final 30 years of the project. They are shown inTable 1.

Item of cash flow	Today (£bn)	Each year (for the first 30 years) (£bn)	Each year (for years 31 to 60) (£bn)
Capital investment	-9.4
User benefits (Includes Time savings, Traffic congestionrelief)		0.843	0.843
Ticket revenues		0.3	0.3
Operational costs and maintenance		-0.422	-0.609

For projects such as Crossrail 1, the UK Government typicallyestimates a 60-year useful life and uses a discount rate of3.5%.

a) What is the net present value (NPV) of theproject?                          [ Select ]                     ["£15.04", "£8.83", "£7.36", "£16.76"]     

b) What is the payback period of theproject?                          [ Select ]                      ["13.04","8.22", "17.60", "7.49"]      

c) What is the internal rate of return (IRR) of theproject?                          [ Select ]                      ["7.57%","7.35%", "5.44%", "6.52%"]      

d) Based on your calculations is Crossrail 1 a viableproject at the discount rate?                          [ Select ]                     ["Yes", "No"]     

You have been asked by the Board to present an analysis thatincorporates more recent cash flow information about the Crossrail1 project. Before the project becomes operational, the capitalinvestment has been given a worse scenario estimate that is 35%above the forecast in table 1. The Board would like to see theanalysis if the net cash inflows will also be 35% below expectationover the 60-year life whether under the existing hurdle rate of3.5% it would remain viable.

a) What is the net present value (NPV) of theproject?                          [ Select ]                     ["-£2.16", "£4.78", "£3.20", "-£1.80"]     

b) What is the internal rate of return (IRR) of theproject?                          [ Select ]                      ["2.72%","3.10%", "1.79%", "0.67%"]      

c) Based on your calculations is Crossrail 1 a viableproject at the discount rate?                           [ Select ]                     ["Yes", "No"]