Reference no: EM131545601

The freight loads are expected to increase each year for the next 10 years before leveling off for another 15 years. Buffet forecasts Year 1 revenue at $350,000,000. The 2017 Earnings Before Depreciation and Taxes are forecast at 28% of Revenue each year. In Years 2 – 5, revenue is forecast to increase by 12% each year. Competition from the Union Pacific Railroad is a threat to the forecast, but BNSF has many miles of track in the Northern U.S. already, and should be able to withstand a freight price war with Union Pacific. The St. Paul to Fargo line will require 290 miles of track to be installed. In addition to the track infrastructure installation - land, locomotives, and sand freight cars will have to be purchased The projected cost per track mile is estimated to be $1.1M. This is an all in cost that includes track, land, and trains. Land represents 10% of the investment amount. The remaining investment amount will be taken over 15 years MACRS. Tax Rate: 30% Cost of Capital/Discount Rate: 7% Calculate the following for five years: Payback method Net Present Value method 5 year cash flow schedule Internal Rate of Return Modified Internal Rate of Return