ABC Pty Ltd intends

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Aim
This assignment is an opportunity for you to reflect on and integrate the materials covered through a simplified case. The materials covered include the characteristics of project finance and how a typical proposal can be evaluated.
Brief
ABC Pty Ltd intends to form a special purpose vehicle (SPV) to be incorporated in Australia. This will involve building new water treatment facilities. ABC Pty Ltd intends to undertake the development of the proposed water treatment facilities through a project financing approach. The constructed facilities will be used as the business solution in providing clean water solutions to the local community.
The following are some of the in-principle agreements with the various parties after much negotiation:
The project is to be developed using a BOT arrangement where WaterSolution will finance and build, operate and transfer the facilities back to the state government at the end of 20 years.
There are three off-take agreements:
to sell CallWater Pty Ltd 450,000 cubic litre of treated water per day at a fixed price of $0.025 per cubic litre. This agreement will expire at the end of 20 years. The contract allows for the price to increase by 7% per annum.
to sell APWater Limited 550,000 cubic litre of treated water per day at a fixed price of $0.020 per cubic litre. This agreement will expire at the end of 20 years. The contract allows for the price to increase by 10% per annum.
to sell Nuwater Pty Ltd 600,000 cubic litre of treated water per day at a fixed price of $0.030 per cubic litre.
This agreement will expire at end of 20 years. The contract allows for the price to increase by 5% per annum.
The capital expenditure (include construction cost plus all relevant professional fees, insurance) is estimated at $85,000,000 incurred at year 0.
WaterSolution has an agreement to buy untreated water from DirtyWater Ltd at the price of $0.012 per cubic litre. The price of untreated water will increase by 3% per annum.
The annual operation cost (starting from year 1) is estimated to be as follows:
Management fees $350,000 per annum with an increase of 10% per annum
Maintenance works $600,000 per annum with an increase of 10% per annum
Insurance cost $150,000 per annum with an increase of 5% per annum
Miscellaneous cost is fixed at $100,000 per annum
Also, assume the following:
Current interest-free rate (based on Government bond) is 3.5%
ABC Pty Ltd’s beta is estimated to be 0.9 (based on the ratio of the standard deviation of the firm’s return to the standard deviation of the stock market return)
Expected market return of the water industry where ABC Pty Ltd main business lies, is 15%
WaterSolution will borrow 75% of the capital expenditure from a consortium of banks at a cost of 12%. The repayment will start immediately in Year 1 and should be repaid fully in year 20. The remaining 25% is raised through equity.
Assume construction completed in year 0 and operation begin immediately in year 1.
Assume there is no tax involved.
Questions
Calculate the Project IRR.
Calculate the Equity IRR.
Calculate the DSCR.
Calculate Expected Return using CAPM.
Calculate the WACC.
Should the project go ahead using project finance scheme? Give your reasons.
Assessment declaration: When you submit work electronically, you agree to the Assessment declaration (Links to an external site.) (Links to an external site.).
Learning Outcomes
Determine and apply knowledge of complex project management theory, principles and best practice to applied projects to contribute to the profession and discipline of project management
Critically analyse, synthesise and reflect on project management theory and recent developments, both local and international, to extend and challenge knowledge and practice 7
Professionally communicate and justify project scope, design, implementation, strategy and/or outcomes, engaging effectively with diverse stakeholders across a range of industry sectors
Apply the specialist knowledge and technical skills required to creatively address the diverse needs of project stakeholders, formulating innovative solutions and demonstrating independent and sound decision making related to your professional practice and the discipline
Referencing guidelines
You must acknowledge all the courses of information you have used in your assessments.
Refer to the RMIT Easy Cite referencing tool to see examples and tips on how to reference in the appropriated style. You can also refer to the library referencing page for more tools such as EndNote, referencing tutorials and referencing guides for printing.
Use RMIT Harvard referencing style for this assessment.
Submission format
Upload as one single file via the assignments submission page within Canvas.
Academic integrity and plagiarism
Academic integrity is about honest presentation of your academic work. It means acknowledging the work of others while developing your own insights, knowledge and ideas.
You should take extreme care that you have:
Acknowledged words, data, diagrams, models, frameworks and/or ideas of others you have quoted (i.e. directly copied), summarised, paraphrased, discussed or mentioned in your assessment through the appropriate referencing methods,
Provided a reference list of the publication details so your reader can locate the source if necessary.
This includes material taken from Internet sites.
If you do not acknowledge the sources of your material, you may be accused of plagiarism because you have passed off the work and ideas of another person without appropriate referencing, as if they were your own.
RMIT University treats plagiarism as a very serious offence constituting misconduct.
Plagiarism covers a variety of inappropriate behaviours, including:
Failure to properly document a source
Copyright material from the internet or
databases Collusion between students

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