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Uses of anti glare screen barrier in economic, financial analysis and

determination of optimal debt capacity ratio for a road project

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DOI: 10.1007/s12205-012-1351-9

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KSCE Journal of Civil Engineering (2012) 16(7):1104-1114 Construction Management
DOI 10.1007/s12205-012-1351-9
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Uses of Anti Glare Screen Barrier in Economic, Financial Analysis and

Determination of Optimal Debt Capacity Ratio for a Road Project
Swapan Kumar Bagui* and Ambarish Ghosh**
Received October 16, 2010/Revised 1st: May 4, 2011, 2nd: August 24, 2011, 3rd: December 14, 2011/Accepted February 13, 2012

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Abstract

Drivers of vehicles are facing problem to drive due to the glare of head light of the opposite vehicle. This reduces the speed of
vehicle during night driving for the case of not providing anti glare screen barrier on the median of the divided carriageway. This
speed can be increased by providing anti glare screen barrier on the median of divided carriageway. Different values of Vehicle
Operating Cost (VOC) have been found for both the cases. The values of VOC savings 40% and 15% are recommended as toll tariff
for commercial and passenger/bus vehicle respectively. Financial analysis has been carried out using toll rate calculated from VOC
savings. Toll revenue has been determined considering effects of local traffic, leakage of traffic and toll exempted traffic. These toll
rates are used to carry out financial analysis to determine optimal debt capacity ratio. This paper presents the development of a model
to determine the optimal debt equity ratio based on equal and variable repayment schedule as well as proposing equal and variable
depreciation and identify best model for using equity holder. The model is the combination of a financial model and a linear
programming model that incorporates an objective of maximizing the return of the project from the equity holder’s point of view and
identify best method of repayment schedule from promoter point of view. Equal installment schedule with Written Down Value i. e.,
variable Depreciation Method is the best method which maximizes return on equity. To show the versatility of the model, a real case
study has also been presented herein.
Keywords: BOT (Build Operate and Transfer), glare, glare screen height, model analysis, VOC (Vehicle Operating Cost), FIRR
(Financial Internal Rate of Return), NPV (Net Present Value)
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1. Introduction
Glare is an important parameter in highway engineering during
traveling from one place to another place. Glare effect is max-
imum at night and driving speed is reduced due to the effect of
glare.
Glare can be controlled by installing anti glare screen barrier
on the median of four/six lanes divided carriageway. Glare
screen barrier has an important role in calculating economic and
financial analysis of a road project.
Vehicle speed has been reduced to 70-80 kmph for the case of
four/six lanes divided carriageways during night in the absence
of anti glare screen barrier. This reduction of speed increases
VOC and travel time cost savings. VOC savings both cases have
been used to fix toll rate vehicle mode wise for a Build Operate
and Transfer (BOT) project. These toll rates are used for
financial analysis to determine optimal debt equity ratio.
Travel time costs are calculated from average travel speeds,
distance travel and unit cost per hour of road users’ time. In case
of increasing speed for a fix distance travel, travel time will be
reduced and travel time cost will be saved. Suppose, a man
traveled 100 km road in one hour on a four lanes road with the
provision of glare screen and it takes 1.5 hour in case of without
provision of glare screen. His time saving for provision of glare
screen on road is 0.5 hour. His time saving cost is Rs 30 per hour.
So saving is Rs 15.
Vehicle operating cost is calculated from the sum of the
following components:
• Fuel and lubricating oil consumption
• Tire and spare parts
• Vehicle crew wages
• Vehicle maintenance labor cost
• Vehicle depreciation and interest on capital
Separate sets of equations are used for different vehicle types
specified by user. For each vehicle type, the models predict aver-
age speeds as function of road geometry and road condition. The
above VOC components with exception of vehicle depreciation
and interest depend on largely roughness and road geometry.
Major parameters like internal rate of return, net present value
depends on vehicle speed in base case and improved case.

*Ph.D. Student, Dept. of Civil Engineering, Bengal Engineering and Science University, Shibpur, Howrah - 711 103, India; Intercontinental Consultants and
Technocrats Pvt. Ltd, A-8, Geen Park, New Delhi, India (Corresponding Author, E-mail: swapanbagui@gmail.com)
**Professor, Dept. of Civil Engineering, Bengal Engineering and Science University, Shibpur, Howrah - 711 103, India (E-mail: ambarish@civil.becs.ac.in;
ghosh1968@yahoo.co.in)

− 1104 −
 Uses of Anti Glare Screen Barrier in Economic, Financial Analysis and Determination of Optimal Debt Capacity Ratio for a Road Project
Changing these speed increases these parameters.
General principles suggested by one World Bank report (for
Viet Nam) indicate that (i) tolling is appropriate only when traffic
levels exceed 4,000-5,000 vehicles per day; (ii) toll rate levels
should not result in excessive traffic diversion with an upper
limit of acceptability considered to be in the range of 10-15
percent; and (iii) under certain conditions, toll rates can be set
higher where there is no feasible alternative.
Toll rates were set at levels considered adequate to avoid
excessive traffic diversion. The toll levels established for the
various project links were set at levels consistent with existing
tolls in the rest of the Colombian network, i.e., at a level that
would allow full recovery of routine and periodic maintenance
costs. The proposed tolls varied from 9 to 36 percent of user
cost savings, with the lowest values corresponding to buses and
the highest to medium trucks.
Different approaches taken in Brazil, Chile, and (Bagui and
Ghosh, 2009b) Mexico demonstrate the need for affordable toll
rates. Tolls in Brazil have also been kept at relatively low levels
by worldwide standards, usually about USD 0.04 per km, which
has helped promote public acceptance of the program.
Another instructive example is that of Chile, which has
endeavored to keep tolls at levels that users are willing to pay toll
for improved services (i.e., about USD 0.025-0.030 per vehicle-
km, linked to the consumer price index).
The Indonesian toll road agency, undertakes to process such
applications through the government regulatory and approval
mechanism. Tariff rates are usually determined by comparing
user cost savings on the toll road in question with the shortest
non-toll alternative; the maximum tariff cannot exceed 70
percent of the vehicle operating cost and travel time cost savings.
In a BOT project, the private promoter is wholly (Malini,
1997) responsible to raise the necessary finance, which is often a
combination of debt and equity. Debt is provided by lending
institute and equity is subscribed by the promoting companies
and by participating shareholders who view the project as an
attractive investment opportunity. The use of debt is essential as
the promoter may not have adequate financial resources for the
entire project cost and also avail the advantages associated with
taxation. Again debt is a cheaper source of fund than equity.
Equity holders demand higher rates of return for the additional
risk they bear, given the uncertainty of their returns. As the costs
of equity are usually higher than those of debt, higher proportion
of equity financing needs higher returns on equity which may
call for higher level of tolls or longer concession period.
There is no norm for suggesting an ideal debt equity ratio for
the success of a BOT project, as it differs from project to project
and from country to country. It is also dependent on how keen
the government is to stimulate private investment in the country
and state economy prevailing in the country.
Dias and Iaonnou (1995) have shown that Net Present Value
(NPV) and return on equity of a BOT project are sensitive to the
selected Debt/Equity (D/E) ratio and that decline rapidly as the
promoter borrows more than optimal amount in an attempt to
Vol. 16, No. 7 / November 2012
reach project’s debt capacity level.
The (D/E) ratio norms are specific to the country in which the
investment is made and these largely depend on how keen the
government is to stimulate private investment in infrastructure
projects. In India, the admissible D/E ratio for road infrastructure
projects has recently been extended up to 70:30 as an incentive to
promote privatization. Studies have shown that financial perfor-
mance indicators of a BOT project can be quite sensitive to the
selected D/E ratio and decline rapidly as the project promoter
borrows more than the optimal amount in an attempt to reach the
project’s debt capacity level (Malini, 1997; Dias and Ioannau,
1996). The use of optimal capital structure merits significant atten-
tion during the project evaluation phase. Finally Mathematical
model to determine optimum debt capacity ratio was developed.
Tiong (1995) observed from his comparative study of six BOT
projects from both developed and developing countries that D/E
ratio varied from 100:0 to 80:20.
The use of a fixed equity debt ratio of 15/85 or 20/80 (Ali
Şentürk et al., 2004) might not be suitable for all BOT projects.
In the world, there are examples of projects with an equity debt
ratio of 1/99. As the ratio of equity and debt increases, the
tendency to finance the equity from the project also increases and
this directly influences the cost of the investment. It is therefore,
advised not to restrain the equity debt ratio in BOT projects, if the
optimum total investment cost is to be achieved. This is a matter to
be considered by both the owners and the financing groups.
However, the programme of mobilization of debt capital
during the construction period can be regulated by the promoter
subject to the limiting value of D/E ratio. Usually, the equity is
used up in the initial years of the project construction activity and
debt is availed to cover the expenses later.
The available studies about the uses of Anti Glare Screen
Barrier in Economic, Financial Analysis and to Determine
Optimal Debt Capacity Ratio for a Road Project are very rare.
Bagui and Ghosh (2009a, 2009b) explicitly deal with the effect
of uses of antiglare screen barrier. The work also discusses how
VOC varies with the uses of antiglare screen barrier and increases
the toll tariff vehicle mode wise. Glare screen barrier protects the
head light of oncoming vehicle. Glare from oncoming headlights
has some effect on speed and steering. Several field studies have
been carried out and it has been found that night speeds reduce
than that of day speed. It has been found that travel time at night
is more than that of day time. VOC directly depends on vehicle
speed, road geometry and road condition. HDM 4 analysis of
case studies show that VOC is higher at lower vehicle speed of
vehicle and vice versa.VOC of Base case analysis of real case
study is more than that of improved case.VOC saving is com-
pared with base case value. VOC saving is defined as VOC of
base case – (minus)VOC of improved case.VOC saving provision
of anti glare screen is found more than that of VOC saving of
provision of without anti glare screen when both are compared
with base case. Toll rate is considered some fixed percentage of
VOC saving as mentioned in the literature review. Toll rate with
provision of anti glare screen increases due to increase of speed.
− 1105 −
 Swapan Kumar Bagui and Ambarish Ghosh
Aged drivers have the tendency to drive at lower speed at night
but young drivers drive with higher speed at night. In India in
over all cases day and night travel time are not same because of
heavy vehicles are allowed to travel night only in major urban
places. It is found from field studies that vehicle speed reduces at
night if anti glare screen is not installed on the median of divided
carriageways. Presently anti glare screens are installed on several
four/six lanes roads in India. VOC are lower at higher speed and
vice versa. VOC saving is defined as VOC base case (Existing
two upgraded to two lanes providing overlay, pot hole repair etc.)
- VOC of improved case (up gradation and improvement of two
lanes two four lanes).Toll rate is fixed by certain percentage of
VOC saving. It is found from economic analysis using HDM 4
VOC. With higher speed VOC is lesser but IRR, NPV are higher.
Thus toll rate increases.
Based on present need of research work, the following points
are highlighted in this paper:
• Selection of appropriate percentage of VOC savings to
determine toll tariff vehicle mode wise for financial analysis
• Development of theoretical framework for repayment sched-
ule for various methods (equal and variable repayment sched-
ules) with different depreciation methods (Straight line and
Written Down Value Methods)
• Development of model to maximize NPV based on some
financial constraints like minimum proportion of equity, FIIR
>Discount rate etc.
• Selection of the best method of repayment schedule which
maximizes the profit of the concessionaire for a project
A real case study has been considered for economic and
financial analysis.
2. Formulation of Financial Model
A financial model is a mathematical expression of relation-
ships among financial components. It is used to support decision
making in project evaluation. The project viability is analyzed
from the equity holders’ perspective in the project. The first step
in any investment evaluation is to gather the appropriate informa-
tion on the project costs and calculate the cash flows generated by
that project. In the simplest terms, the cash flow is the difference
between the money coming in and the money going out of the
investment project. ‘‘Every investment opportunity can be fully
described by the cash flow that it generates’’ (Marshall and
Bansal, 1992). The certainty of cash flow determines risk associ-
ated with the investment opportunity. In order to calculate the
value of a project over a number of years, after the estimation of
the cash flows, one needs to take into account the time value of
money. It is a basic principle of finance that money has time value.
3. Assumptions and Theoretical Framework
The following assumptions have been made for the model:
1. The financing of a project is raised by a combination of equity
and debt. The net cash flow during the construction period is
− 1106 −
negative and positive after few years of operation period.
2. A loan is available from one source or from multiple sources
with the same term of annual equal installment and variable
installment.
3. Linear and non linear depreciation methodologies are consid-
ered.
4. Land acquisition cost is borne by the Government .
5. The cash flows during construction are predestinated.
6. The toll rate vehicle mode wise is fixed using VOC savings
obtained from economic analysis results.
7. Complete depreciation of the Total Project Cost (TPC) is
allowed during the operation period.
4. Theoretical Framework
Ranasinghe (1996) has developed a simplified model to
calculate TPC for infrastructure projects in developing countries,
which is the starting point of the (Bakatjan et al., 2003) financial
analysis and the equation has been modified considering mainte-
nance cost during construction and presented in the following
Eq. (1):
TPC = BC + EDC + IDC + MCDC (1)
Where,
BC: The base cost or constant value cost of the project
estimated at market prices of a predetermined year
EDC: The cost escalation during construction
IDC: The interest rate during construction
MCDC: Maintenance cost during construction
After the completion of construction, revenue is generated
from toll during the operation period, which is fixed based on
technical viability of the project. The net annual cash available in
current value is given by NCAi, can be estimated as:
NCAi = PBITi − TAXi + DEPi − Di for i = 1, 2, ···, m (2)
Where,
DEPi: Depreciation
Di: Annual Debt Installment for ith year
PBITi: Profit Before Interest and Tax
TAXi: Tax
TAXi = (PBITi − INTi). TAXi = Tax Rate for i = 1,2, ···, m (3)
Where,
INTi: interest to be paid in the ith year
Debt is assumed to be repaid in two methods as mentioned
below to find out best one.
• Equal Installment (Variable repayment of debt principal)
• Variable Installment (Fixed debt principal repayment system)
Repayment schedule has been computed in excel sheet.
Repayment − Equal Installment
Let r be the interest rate of debt and P be the debt amount.
Repayment schedule is shown in Table 1.
KSCE Journal of Civil Engineering
 Uses of Anti Glare Screen Barrier in Economic, Financial Analysis and Determination of Optimal Debt Capacity Ratio for a Road Project

Table 1. Repayment Schedule for Equal Installment

Year Capital/Outstanding Interest Debt Amount
1 P Pr D-Pr
2 P(1+r)-D [P(1+r)-D]r D-[P(1+r)-D]r=(D-pr)(1+r)
3 P(1+r)2-D(1+r)-D [P(1+r)2-D(1+r)-D]r D-[P(1+r)2-D(1+r)-D]r=(D-Pr)(1+r)2
4 P(1+r)3-D(1+r)2-D(1+r)-D [P(1+r)3-D(1+r)2-D(1+r)-D]r D-[P(1+r)3-D(1+r)2-D(1+r)-D]r=(D-Pr)(1+r)3
# # # #
n P(1+r)n-D(1+r)n-1 ··· D(1+r)-D [P(1+r)n-D(1+r)n-1 ··· D(1+r)-D]r D-[P(1+r)n-D(1+r)n-1 ··· D(1+r)-D]r=(D-pr)(1+r)n-1

Table 2. Repayment Schedule for Unequal Installment (Equal Debt Repayment)

Year Capital/Outstanding Interest Debt Principal Total Installment
1 P Pr P/n P(1/n +r)
2 P- P/n (P- P/n)r P/n P(1/n +r-r/n)
3 P- 2(P/n) [P- 2(P/n)]r P/n P[(1/n +r-2(r/n)]
# # # # #
j P-j(P/n) [P-j(P/n)]r P/n P[(1/n +r- (r-1)/n]

Let n be the year for repayment of debt amount. income and provides an annual tax advantage equal to the
At n th year outstanding /Capital will be zero. Hence, product of depreciation and the (marginal) tax rate, but it does
not lead to a cash outflow from the company. The most common
P(1 + r)n − D(1 + r)n-1 − D(1+r)n-1 ··· D(1 + r) - D = 0 (4)
method for depreciation is straight-line depreciation. Under this
Or method, annual depreciation equals a constant proportion of the
n n–1 n–1 D ( 1 + r ) – 1-
n
initial investment. In this model, it is assumed that TPC can be
P(1 + r) = D (1 + r ) + D (1 – r) ··· + D (1 + r ) + D = ---------------------------
1+r–1 depreciable in its entirety. Thus,
(5)
TPC
Or DEPi = ----------- for i = 1, 2, 3 (10)
n m
D(1 + r) – 1
P(1 + r)n = ----------------------------- (6)
r Where, m is the operation period and DEPi is depreciation for
n each year
D[(1 + r) – 1]
Hence, Pr = ---------------------------------
n
(7)
(1 + r) 5.2 Written Down Value Method
Debt at the year j = (D - Pr)(1+r) j-1 (8) Under this method, depreciation is calculated in accordance
with the following equation (Chandra, 2008):
Putting the value of Pr, value of debt reduces to the form as
shown below: DEP1 = BV0 r0
(1 + r) – 1
n DEP2 = BV0 r0 ( 1 – r0 )
- ( 1 + r )j – 1
Dj = D 1 – ----------------------- (i – 1)
(1 + r)
n DEPi = BV0 ( 1 – r0 ) r0 (11)
–( n – j + 1 )
Dj = D ( 1 + r ) (9) Where,
BV: TPC
This is the basic equation of debt repayment schedule of a
DEP: Depreciation charge
project when equal installment shall be repaid by the conces-
r0: Depreciation
sionaire.
Both the above mentioned methods are used to find out the
Repayment - Equal Debt Principal i.e.,
best one.
Variable Installment Each Year
Let P be the principal and it will be repaid in n variable install- 5.3 Maintenance Cost during Construction
ments. Installment is variable due to constant debt repayment. Maintenance cost during construction includes repair of pothole,
Debt amount to be paid=P/n. Detail calculation is shown in patch, thin overlay, construction of diversion etc. These costs are
Table 2. included in the financial analysis.

5. Depreciation 5.4 Operation and Maintenance Cost

Operation and Maintenance (OM) cost includes personnel
5.1 Straight Line Method salaries, indirect costs, insurance cost, and OM of road cost. These
Depreciation is a noncash expense. It only reduces taxable costs are calculated separately and used in financial model.

Vol. 16, No. 7 / November 2012 − 1107 −

 Swapan Kumar Bagui and Ambarish Ghosh
5.5 Formulation of Linear Programming Model
Linear Programming (LP) models are extensively used in
capital budgeting (Park and Sharpe-Bette, 1990). The objective
is to maximize NPV/IRR, ‘‘the best way to compute a rate of
return for an investment.’’ (Marshall and Bansal, 1992). In this
model, optimal capital structure is the mix of debt and equity that
maximizes NPV/IRR from the equity holder’s point of view,
with the following constraints:
1. Minimum equity amount allowed by legislation is 10-20%. It
varies country to country depending on Government’s policy.
2. IRR must be greater than the discount rate. In other words,
NPV must be positive.
3. PBIT should be always greater than zero, for financial viabil-
ity of the project.
4. Average DSCR should be at least equal to 1.5. DSCR in the
range of 1.10 to 1.25 is Bankable, 1.30 to 1.50 is satisfactory
and comfortable, and above 1.50 is preferable. Minimum
DSCR should be 1.0.
The view point of equity holders is focused on the project
metrics, Financial Internal Rate of Return (FIRR) and NPV. The
FIRR and NPV are the most common and fundamental financial
decision making parameters employed in practice (Lohmann,
1988).
The objective is to maximize NPV. In this model, optimal
capital structure is the mix of debt and equity that maximizes
NPV from the equity holder’s point of view, with the following
constraints is proposed for the case study:
1. Minimum equity amount allowed is 10%
2. FIRR must be greater than the discount rate
3. PBIT should be always greater than zero for financial viability
of the project
4. Average Debt Service Coverage Ratio (DSCR) should be at
least equal to 1.6
5. Toll rate of vehicle mode wise is fixed based on VOC saving
vehicle mode wise
5.6 The Linear Programming Model
A real case study has been considered based on present experi-
ence of a few ongoing BOT projects in India. Minimum equity is
10%, FIRR of concessionaire shall be greater than discount rate
and minimum average Debt Service Coverage Ratio is 1.6.
These values are used to formulate the following linear program-
ming model. These values should be varied from project to
project depending on the need of the project.
Objective function: Maximize NPV=f(E)
Subject to E≥0.10, IRR≥Discount Rate, NPV≥0, and Average
DSCR≥1.6.
Where f(E): Function of equity.
6. Case Study
6.1 Project Background
The National Highways Authority of India (NHAI) has been
− 1108 −
entrusted with the development, maintenance and management
of such of the highways as entrusted to it by Government, the
Government have decided to convert some of the existing two
lanes highways into four lanes highways.
National Highway (NH) No. 4, running between Mumbai –
Pune – Satara – Kolhapur to Kagal – Maharashtra State Border is
an important highway in western Maharashtra (NHAI 2000).
The project road passes through three Districts viz. Satara,
Sangli and Kolhapur in the State of Maharashtra. About 46 km
(592-638 km) of project road is under Kolhapur district, 32 km
(638-670 km) is under Sangli district and remaining 55 km (670-
725 km) is under Satara district. Some portion has been con-
sidered as a case study (605 to 616 km). Flow Chart 1 shows the
detail methodology.
6.2 Economic Analysis
A case study has been adopted considering following cases for
economic analysis:
Case 1: Base Case-Maintain existing two lanes road to two
lanes providing do minimum. Vehicle speed of base case
is taken 30 kmph
Case II: Widening of existing two lanes road to four lanes road
without providing anti glare screen barrier. Vehicle speed
of this improvement case is taken 80 kmph
Case III:Widening of existing two lanes road to four lanes road
with providing anti glare screen barrier. Vehicle speed
of this improvement case is taken 100 kmph
6.3 HDM Input Requirements
The basic input files required to run HDM-4 (Kerali, 2000)
software for economic analysis are:
• Road Network
• Vehicles Fleet
• Road Works
• HDM Configuration
6.3.1 Road Network
Following field data have been collected according to the
requirement of inputs for HDM-4 for project analysis.
The road network input file has been prepared as a two lanes
road link with 7 m carriageway and 1.50 m earthen shoulder and
11 km length. Road classification, speed flow pattern, surface
type etc. were recorded.
Pavement data include Pavement Condition, Roughness,
Benkelman Beam Deflection, Axle loads, and the thickness of
pavement compositions. Average condition data of the entire
section has been carried out and used for economic analysis.
6.3.2 Vehicles Fleet
Information on classified Traffic Volume, speeds, growth rate
factors etc. have been collected from the field study. Average
Annual Daily Traffic (AADT) was 7500.
The basic details of motorized vehicles as well as economic
costs related to motorized vehicle fleet used in the analysis are
KSCE Journal of Civil Engineering
 Uses of Anti Glare Screen Barrier in Economic, Financial Analysis and Determination of Optimal Debt Capacity Ratio for a Road Project

Table 3. Preliminary Project Cost Case – 3 Improvements Option

Improvement Option
Economic Cost Widening of existing two lanes road to four lanes road along
(Rs Million) per km with routine maintenance-annually, functional overlay – every
Two lanes to Four Lanes fifth year and structural overlay -every tenth year with providing
a) Without anti glare screen barrier 46 anti glare screen barrier.
a) With anti glare screen barrier 47
6.3.3.5 Speed
recommended by Central Road Research Institute (CRRI) HDM Speeds of vehicles are considered 100 km/hr for day time.
Training manual, 2000. Night speed is taken 80 and 100 km/hr for without anti glare
screen barrier and with anti glare screen barrier on the median
6.3.3 Road Works respectively. Base case speed was found 30 km/hr from field
6.3.3.1 Costing investigation.
Preliminary project cost has been determined based on
pavement design, widening of the road from two lanes to four 6.3.4 HDM Configuration Files
lanes with and without providing anti glare screen barrier and To represent the actual field condition, traffic flow pattern,
shown in Table 3. Rate analysis of each item has been calculated Climatic and Speed flow type configuration files are prepared.
based on standard data book, 2000. Traffic flow pattern file created by deriving 24 hours traffic
volume to represent the peak and off-peak hour traffic flow
6.3.3.2 Maintenance and Rehabilitation Alternative pattern.
The various routine and schedule maintenance are considered
which consist of annual maintenances, functional and structural 6.3.5 Economic Analysis Results
overlay. Economic analysis has been carried out using HDM 4 software
and results are shown in Table 4.
6.3.3.3 Project Analysis
An economic analysis is conducted with a discount rate of 12 6.4 Financial Analysis
percent as recommended by World Bank. The financial analysis has been carried out to evaluate the
financial strength of the project from an investor's point of view.
6.3.3.4 Pavement Management at Project Level Obviously, the exercise presumes that the 4-lane highway is an
Project level pavement management analysis is carried out for economically viable option. In this exercise, all the costs and the
the following cases: benefits are based on the market prices.

Case – 1 – Base Option – Do Minimum 6.5 Costs

This case consists of routine maintenance-annually, functional The costs to be considered for commercial viability analysis
overlay – every fifth year and structural overlay every -tenth consist of:
year. • Cost of construction
• Annual and periodic repair and maintenance cost
Case – 2 Improvements Option • Toll administration cost
Widening of existing two lanes road to four lanes road along
with routine maintenance-annually, functional overlay – every 6.5.1 Construction Cost
fifth year and structural overlay every - tenth year without The construction costs ( Widening of two lanes to four lanes
providing anti glare screen barrier. road of 11 km length) for the road is calculated and base cost

Table 4. Results of Economic Analysis

Transportation costs and Savings (Rs/km)
Toll Rate
3 Axle Truck Bus 2 axle LCV* Multiaxle Car
Base Case VOC Cost 14.18 18 9.5 7 20 5.9
Without Anti Glare Screen Barrier VOC Cost 10.5 7.55 5.15 4.5 13.53 2.33
With Anti Glare Screen Barrier VOC Cost 10.3 6 4.9 4.3 10.3 2.7
VOC Saving for Without Anti Glare Screen Barrier 3.5 10.45 4.35 2.5 6.47 3.57
VOC Saving for With Anti Glare Screen Barrier 3.7 12 4.60 2.70 7.1 3.80
Toll charge as approximate percentage of saving 40 % 15% 40% 40% 40% 15%
Toll rate- Without Anti Glare Screen Barrier (Rs/km) 1.4 1.6 1.6 1.0 2.5 0.50
Toll rate- With Anti Glare Screen Barrier (Rs/km) 1.5 1.8 1.80 1.1 2.85 0.55
Note :* LCV:Light Commercial Vehicle

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 Swapan Kumar Bagui and Ambarish Ghosh

with the provision of anti glare screen barrier found Rs. 47

million per km. Total cost of bypass=11×47=Rs 517 million
(USD 1=Rs 40).

6.5.2 Maintenance Cost

This cost is taken as Rs 0.23 million per km based standard
Maintenance Norm (Government of India). So total annual main-
tenance cost Rs 11×0.23 million =Rs 2.53 million.

6.5.3 Periodic Maintenance

Functional overly in the form of 40 mm bituminous concrete Fig. 1. TPC as Function of Equity for Equal Repayment Schedule
to be provide every 5th year. Approximate cost=17×1000×0.04
×4175= Rs 2.84 million.
Total periodic strengthening overlay cost Rs 2.84×11=Rs. 31.2
million.

6.5.4 Structural Maintenance

Structural overly in the form of 40 mm bituminous concrete
and 50 mm Dense Bituminous Macadam to be provide every
10th year. Approximate cost=17×1000×0.04×4175+17×1000×
3700=Rs 5.93 million.
Total periodic strengthening overlay cost Rs 5.93×11=Rs. 66.84
Fig. 2. FIRR (Promoter) as Function of Equity for Equal Repay-
million.
ment Schedule

6.5.5 Toll Administrative Cost

Toll administrative cost consists of salary of toll collectors,
security guards, labour, accountants, toll manager, bill of
electricity, expenses of generator. This cost has been found Rs 3
million per year.
An annual inflation has been calculated based on Consumer
Price Index (CPI).
Toll rates have been calculated based on economic analysis
and shown in Table 4. Fig. 3. NPV as Function of Equity for Equal Repayment Schedule

6.6 Financial Analysis

6.6.1 Mathematical Calculation for Cash Flows
Financial analysis has been carried out taking various percent-
ages of equities. TPC, NPV, IRR and DSCR are calculated and
presented in the graphical forms with best fit linear equation and
shown in Figs. 1 to 4 for equal installment schedule with linear
depreciation of construction cost. Similar figures are developed
for calculation of NPV, IRR and DSCR for variable installment
schedule i.e., repayment of fixed debt with linear depreciation.
Linear programming equations for both cases are as follows: Fig. 4. Average DSCR as Function of Equity for Equal Repayment
Schedule
6.6.2 Case 1: Equal Installment Schedule
Maximize
Based on these conditions, linear programming-Simplex Method
NPV = -5.2285 E + 664.86 (12) has been applied (Kapoor 1999). Detail calculation is shown in
Appendix 1. Final values are reported as:
Subject to:
Equity = 8.85% and maximum NPV = Rs 568.3 Million.
E ≥ 10%, DSCR ≥ 1.6, NPV ≥ 0
FIRR = −0.1223E + 32.862 (13) 6.6.3 Case 2: Unequal Installment Schedule
DSCR = 0.0357E + 0.9273 (14) Maximize

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 Uses of Anti Glare Screen Barrier in Economic, Financial Analysis and Determination of Optimal Debt Capacity Ratio for a Road Project

NPV = -9.01E + 670.4 (15) NPV = − 8.07E + 682.1 (22)

Subject to: E ≥ 10%, DSCR ≥ 1.6, NPV ≥ 0
FIRR = − 0.15323E + 29.899
DSCR = 0.0029E + 1.5644
By Simplex Method, E = 12.5%
DSCR = 0.0029 × 12.5 + 1.5644 = 1.60066
NPV = 557.78
FIRR = −0.15323E + 29.899 = − 0.15323 × 12.5 + 29.899
= 27.984.
Discount Rate = 15 × (1 − .125) + 20×0.125 = 13.43,Hence ok.
Optimal debt equity ratio = (1 − 0.125)/0.125=7.
6.7 Equal Repayment Installment with Written Down Value
Depreciation Method
Financial analysis is carried out taking variable depreciation
and summary of the results are shown in the form of linear
equation as follows:
AVDSCR = − 0.0029E + 1.5644 (23)
NPV is maximized and equity percentage is found out 12.3%,
(16)
NPV is Rs 582.84 million and FIRR value is 29.48%. Optimal
(17)
debt equity is=7.13.
7. Mathematical Calculation for Cash Flows with-
out Use of Anti Glare Screen Barrier
In the similar manner financial analysis has been carried out
for various methods and shown in Table 5 for comparisons.
From Table 5, it is found that equal installment with Written
Down Depreciation Method i.e., case 3 is the best suitable
method from equity point of view. So Case 3 is the best method
from equity holder point view. So case 3 i.e., equal installment
with Written Down Depreciation Value is recommended for
consideration.
Typical Cash flow diagrams are prepared at optimum equity

FIRR = − 0.141E + 37.2 (18)

NPV = − 4.845E + 722.6 (19)
DSCR = 0.0408E + 0.8947 (20)
NPV is maximized and equity percentage is found out 17.3%,
NPV is Rs. 638.78 million and FIRR value is 34.8%. Optimal
debt equity ratio is 4.78.

6.8 Unequal Repayment Installment with Written Down

Value Depreciation Method
Following equations have been developed:
Fig. 5. Revenue/Cash Flow/Maintenance Cost vs. Concession Period
FIRR = −0.1503E + 31.33 (21) (Equal Installment & Linear Depreciation)

Table 5. Summary of the Financial Results

With Anti Glare Screen Barrier Without Anti Glare Screen Barrier
Cases
Equation Remarks Equation Remarks
FIRR=30.56% FIRR=28.82%
Case1 –Equal installment FIRR=-0.1223E+32.862 NPV=568.3 FIRR=-0.1021E+30.966 NPV=541.59
with linear depreciation of NPV=-5.2285EE+664.6 DSCR=1.6002 NPV=-5.01 E+645.8 DSCR=1.6005
cost DSCR=0.0357E+ 0.927 E=18.85% DSCR=0.034E+ 0.8933 E=20.8%
D/E=4.30 D/E= 3.81
FIRR=27.98% FIRR=23.4%
Case2 –Unequal installment FIRR=- 0.1532E+29.9 NPV=557.8 FIRR=- 0.1474E+28.84 NPV=269
with linear depreciation of NPV=-9.01 E+670.4 DSCR=1.600 NPV=-9.03E+602.8 DSCR=1.6008
cost DSCR=0.0029E+ 1.56 E=12.5% DSCR=0.0028E+ 1.4972 E=36.9%
D/E=7.0 D/E=1.7
FIRR=34.8% FIRR=33.1%
FIRR=-0.141E+37.2 NPV=638.78 FIRR=-0.1294E+35.586 NPV=567.26
Case 3 –Equal installment
NPV==-4.845E+722.6 DSCR=1.6005 NPV=-4.33E+649.53 DSCR=1.601
with Variable depreciation
DSCR=0.0408E+0.8947 E=17.27% DSCR=0.039E+0.86 E=18.9%
D/E=4.78 D/E=4.26
FIRR=29.48% FIRR=26.8%
FIRR=-0.1503E+31.33 NPV=582.84 FIRR=-0.151E+30.24 NPV=443.27
Case 4 –Unequal installment
NPV=-8.07E+682.1 DSCR=1.6003 NPV=-7.79E+622.46 DSCR=1.602
with Variable depreciation
DSCR=-0.0029E+1.564 E=12.29% DSCR=0.0035E+1.5211 E=22.97%
D/E=7.13 D/E=3.35
Note: Value of NPV in Rs million

Vol. 16, No. 7 / November 2012 − 1111 −

 Swapan Kumar Bagui and Ambarish Ghosh
Fig. 6. Revenue/Cash Flow/Maintenance Cost vs. Concession
Period (Equal Installment & Written Down Depriciation)
Flow Chart 1 Economic and Financial Analysis for Case Study
Fig. 7. Revenue/Cash Flow/Maintenance Cost vs. Concession
Period (Unequal Installment & Linear Depreciation)
Fig. 8. Revenue/Cash Flow/Maintenance Cost vs. Concession
Period (Unequal Installment & Written Down Depriciation)
for various repayment schedule and illustrated in Fig. 5 to Fig. 8.
8. Conclusions
Following conclusions may be drawn from the analysis and
discussion presented in this paper:
On Economic Analysis
• Night speed has been decreased (80 kmph) due to absence of
anti glare screen barrier. This decreases vehicle operating
cost saving and reduces chargeable toll rate.
• Toll rates are found different with and without provision of
anti glare screen barrier cases. This values are reported in
table 4. It varies Rs 1.4 to Rs 1.5 for 3 axle vehicle.
• Anti glare screen barrier should be provided on the median of
− 1112 −
a divided carriageway to reduce glare and reduce economic
loss.
• Provision of anti glare screen barrier is economically and
financially viable so it can be installed to protect glare.
On Financial Analysis
• Total project cost is a function of equity with negative slope.
It varies Rs 828 million to Rs 686 million.
• Financial internal rate of return decreases with increase of
equity percentage. It varies 23.4 % to 34.8 %.
• An average debt service coverage ratio increase with
percentage increase of equity. It varies from 1.600 to 1.062.
• Optimum debt equity ratio can be determined using present
proposed model. It varies from 1.7 o 7.13.
• Net present value has negative slope for equal installment
payment and unequal payment schedule. It Varies from Rs
269 million to Rs 638.8 million.
• Repayment schedule can be compared with equal and
unequal repayment schedule.
• Concessionaire maximizes his profits based on repayment
schedule as calculated.
• Linear Programming model can be prepared taking real
values of equity, financial internal rate of return, net present
value and average debt service coverage ratio.
• Maximum financial internal rate of return is found for the
case of equal repayment schedule with Written Down Value
depreciation method for the present case study. Maximum
NPV and FIIR are found Rs 638.8 million and 34.8%
• Concessionaire maximizes his profits based on repayment
KSCE Journal of Civil Engineering
 Uses of Anti Glare Screen Barrier in Economic, Financial Analysis and Determination of Optimal Debt Capacity Ratio for a Road Project
schedules as calculated using four cases.
References
Ali Şentürk, H., Yazici, G., and Burçin Kaplanoğlu, S. (2004). “Case
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130, No. 3, pp. 225-234.
Bagui, S. K. and Ghosh, A. (2009a). “Financial analysis for providing
anti glare screen and selection of future widening scheme to avoid
glare.” Seminar on Public Private Partnership in Highway Sector
28-29 August 2009, Organised by Indian Roads Congress, New
Delhi.
Bagui, S. K. and Ghosh, A. (2009b). “Selection of toll tariff, debt equity
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Private Partnership in Highway Sector 28-29 August 2009, Organized
by Indian Roads Congress, New Delhi.
Bakatjan, S. A. M., Arikan, M., and Tiong, R. L. K. (2003). “Optimal
capital structure model for BOT power projects in Turkey.” Journal of
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Educational Publisher, New Delhi.
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Vol. 1-Over View of HDM 4, World Bank, pp. 2-25.
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ment rate assumption.” Egg. Econ., Vol. 33, No. 4, pp. 303-330.
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Appendix 1. Simplex Method
Computational procedures in the simplex method require the
construction of simplex table which can be done different ways,
all of which, however, led to the same optimum solution. Initial
Vol. 16, No. 7 / November 2012 − 1113 −
simplex table is formed by writing down the coefficients and
constraints of linear programming problem in a systematic
tabular form. The rule for the construction of the initial simplex
is same in both the maximization and minimization problems.
Minimization problem has been discussed herein.
Consider the general linear programming problem:
Minimize Z=c1x1+c2x2+ ··· +cnxn (24)
Subject to the constraints
a11x1+a12x2+ ··· a1nxn≥b1
a21x1+a212x2+ ··· a21nxn≥b2
#
am1x1+am2x2+ ··· amnxn≥bm
and x1,x2, ··· xn≥0
To convert inequalities into the equations, we subtract surplus
variables and the above problem reduces to the form:
Minimize Z=c1x1+c2x2+ ··· +cnxn+0s1+0s2+ ··· +0sn (25)
Subject to the constraints
a11x1+a12x2+ ··· a1nxn-s1=b1
a21x1+a212x2+ ··· a21nxn-s2=b2
#
am1x1+am2x2+ ··· amnxn-sn=bm
and xj ≥ 0(j=1,2 ··· n);sj≥0(j=1,2 ··· m)
An initial basic solution is obtained by setting:x1=x2 ··· xn=0.
Thus, it can be found
s1=-b1, s2=-b2, ··· sm=-bm.
Which is not feasible because it violates the non-negativity
restrictions (i.e., si≥0). Therefore slight modifications are required
in Simplex Algorithim. Introducing now into the system of con-
straints (**), m new variables A1, A2, ··· Am, known as artificial
variables one to each equation. The resulting system of the
equations can be written as follows:
a11x1+a12x2+ ··· a1nxn-s1+A1=b1
a21x1+a212x2+ ··· a21nxn-s2+A2=b2 (26)
#
am1x1+am2x2+ ··· amnxn-sn+Am=bm
and xj≥0(j=1,2 ··· n); sj≥0(j=1,2 ··· m), Aj≥0(j=1,2 ··· m)
Thus the standard linear programming problem has reduced to
a system of m equations in n+m+m(n decision variables surplus
variables artificial variables).An initial basic feasible solution
can now be obtained by setting n+2m-m variables equal to zero
which is given by :A:=b1, A2=b2, ··· Am=bm.
This however, does not constitute a solution to the original
system of equations because two systems of equations are not
equivalent. Therefore, to derive the artificial variables out of the
solution a very large value (M) id assigned to each of the
artificial variables and a zero value to each of the surplus
variables are the coefficient value in the objective function.
Therefore, the problem can now be written as follows:
 Swapan Kumar Bagui and Ambarish Ghosh

Minimize Z=c1x1+c2x2+ ··· +cnxn+0s1+0s2+ ··· +0sn+MA1 Maximize:

+MA2+ ··· +MAm (27) 666.86-5.2285E
Subject to the constraints Alternatively,
a11x1+a12x2+ ··· a1nxn-s1+A1=b1
Minimize:
a21x1+a212x2+ ··· a21nxn-s2+A2=b2
5.2285E
#
am1x1+am2x2+ ··· -amnxn-sn+An=bm Subject to:
and xj ≥ 0(j=1,2 ··· -n); sj≥0(j=1,2 ··· m), Aj≥0(j=1,2 ··· m) E ≥ 10
E-S1+A1=10 (28)
The modified simplex method for solving a L.P. problem,
666.86-5.2285E ≥ 0
when a high penalty cost or profit M has been assigned to the
5.2286+S2=666.86 (29)
artificial variables is sometimes known as the Big M Method or
0.0357E+0.9273≥1.6
Penalty Method.
0.0357E-S3+A2=0.6727 (30)
Simplex Method has been used to solve the problem.

Based on this Simplex Tables are developed and mentioned below :

Cj Basic Solution 5.2285 0 0 0 M M Minimum
CB Variable Variable x1 S1 S2 S3 A1 A2 Ratio
M A1 10 1 -1 0 0 1 0 10
M A2 666.86 5.2285 0 1 0 0 0 127.5433
0 S2 0.6727 0.0357 0 0 -1 0 1 18.84314
Zj 5.332M -M M 0 M 0
Z= Cj- Zj 5.332M-5.2285 M -M 0 -M 0

Cj Basic Solution 5.2285 0 0 0 M M Minimum

CB Variable Variable x1 S1 S2 S3 A1 A2 Ratio
5.2285 x1 10 1 -1 0 0 1 0 -10
M A2 614.575 0 5.23 1 0 -5.2285 0 117.54
0 S2 0.3157 0 0.04 0 -1 -0.0357 1 8.84
Zj 5.2285 5.2285M-.5.2285 M 0 .1223-4.33M 0
Z= Cj- Zj 0 .1223-4.334M -M 0 3.33M-.1223 M

Cj Basic Solution 5.2285 0 0 0 M M Minimum

CB Variable Variable x1 S1 S2 S3 A1 A2 Ratio
5.2285 x1 18.85 1 0 0 -28.01 0 28.01
0 S1 568.34 0 0 1 146.46 0 -146.46
0 S2 8.85 0 1 0 -28.01 -1 28.01
Zj 5.2285 0 0 -146.46 0 146.46
Z= Cj- Zj 0 0 0 146.46 M M-166.45

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