3. TransUrban Developments – Smart City Infrastructure
• Project Description: A city development project involving roads, energy grids, and IT infrastructure, with different phases of investment and revenue generation. Initial costs are high, but as the city attracts residents, revenue is expected to scale up over the long term.
• Cost and Revenue Structure:
o Initial Investment: $25 million
o Discount Rate: 10%
o Cash Flows:
ï‚§ Year 1-2: Outflow = $5 million annually; Inflow = $0
ï‚§ Year 3: Outflow = $3 million; Inflow = $5 million
ï‚§ Year 4-10: Inflows increase by 20% annually due to population growth and increased service utilization
ï‚§ Expected Operating Expenses: 5% of annual inflows starting in Year 3
• Analysis Focus:
o DPP: Determine the time to recover the substantial initial investment with discounted inflows.
o NPV & PI: Assess profitability given increasing returns over time.
o ROI: Evaluate the project’s return as a percentage of the significant initial and ongoing costs.