Project Assessment at Railways

The Railway Minister, Ms Samta Banerjee has mooted the idea of running a Duranto Express Between
Mumbai and Baroda. The railway board has the task of examining the proposal. There will be, in fact two
trains running in the opposite directions, one in the morning and another in the evening every day. The
trains will make two trips, i.e., to and fro each.

The purchase cost of the trains is estimated at Rs. 20 crores, for both the trains put together. Of this, Rs.
10 crore is to be paid upfront and the rest on the delivery of the trains (i.e., engines and carriages) which
is expected one year after the initial payment.

In addition to purchasing the rolling stock, Railways have to make special arrangements for plateforms,
control rooms, installation of signaling systems, track modernization in certain sections and special
training for the staff to handle this new train. This would involve an investment of Rs. 50 crore in total.
However, only 50% of this would be required immediately, the remaining being payable when all
physical facilities get ready (which is expected in a year’s time from now).

The trains will have maximum seating capacity of 1000 passengers per train per trip. The price of the
ticket is tagged at Rs. 250 per passenger. The operating expenses of the train will have a fixed
component of Rs. 10 crore per year. The variable component is estimated at Rs. 25 per passenger.

Railway board traffic analysts estimate the following figures for traffic intensity:

No. of Passenger per Trip Probability

1000 0.1
900 0.2
800 0.3
700 0.2
600 0.1
500 0.1

It is also estimated that every year the trains will run for 330 days.

The economical useful life of the Duranto Express is taken as 10 years from the next year. We are
currently in the year 2013.

The Railways being a Government Department, uses 8% as a required rate of return.

Help the railway board in evaluating the proposal.