Boston’s Central Artery Project undertook a massive-large scale operation to shift their highway underground. This project was named ‘The Big Dig’ due to the large scale drilling to make tunnels that could support highway like traffic and be open all year round. Due to its large scale operations, the construction required a lot of investment that could only be funded by issuing bonds. This paper describes the calculation for the bond to make it successful for the construction to be viable. Methods
The case gives some important information that will help in completing this problem. The cost of the bond is given as 15 Billion while the interest rate to be charged is given as 5%. Since most bonds have a semi-annual interest payments, this bond’s value will be calculated on this value as well. What we need to find is the cost for the bond to be returned and the total interest payments over the life of the bond till its maturity. With the sum of these two figures, we will get the total cost the government has incurred on this project.
After this is we just need to calculate how many cars would pass from that highway in thirty years and then we will divide the sum of the costs by the total number of cars passed in thirty years to get the exact value at which the project will break-even. Results The result from the calculations driven by dividing the total cost to be returned by the number of cars in 30 years shows that a toll price of $17. 123 should be charged to break-even the cost for the whole financing operation. Recommendations
The toll price is too high if we calculate the expected life of the highway to be 30 years (same as the finance life). However, in reality the highway’s life would be much greater than 30 years. Approximately the life is expected to be 50 years at least. Considering this factor, the answer would differ and would come to be around $10. However another factor to consider would be the increase in the traffic in the future that would further reduce the price of the toll. However at the moment this price is too high and would need to be brought down to allow the motorists to travel via this route.