Year 2005 2006

1. EBITD (Nominal $) 910.0 1,149.5

2. Tax exempt interest 108.5 98.6
3. Taxable interest 109.3 383.2
4. Depreciation 88.6 103.3
5. Income (loss) before tax 603.6 564.5
6. Tax @ 38% 229.4 214.5
7. Net income/(loss) 374.2 350.0
8. Depreciation 88.6 103.3
9. Levered operating cash flow 462.8 453.3

Expenditures
10. Preliminary
11. Development
12. Right of way
13. Infrastructure (private)
14. Infrastructure (public)
15. Rolling stock
16. Net working capital additions 9.6 10.6
17. Additional trainsets, overhauls 287.8
18. Infrastructure renewal 5.6
19. Total expenditures 9.6 304.0

Debt Financing
20. Tax-exempt debt issued
21. Taxable debt issued 2,738.2
22. Federal trust funds in/(out) (2,700.0)
23. Tax-exempt debt repaid (113.4) (123.4)
24. Taxable debt repaid (130.1)
25. Net New Debt (243.6) (85.2)
26. Total private debt outstanding 1,995.8 4,610.6
27. Federal financing outstanding 2,700.0 -
28. Total debt outstanding 4,695.8 4,610.6
29. Total Funding Need (cash flow) 209.6 64.1
30. Use of cash savings from prior year - -
31. Increase in cash savings (cash use) - -
32. Equity Cash Flow 209.6 64.1

Equity Financing
33. Founders equity issued
34. Venture equity issued
35. Construction equity issued
36. Other equity issued
37. Total Equity Issued - -
Tax rate
EBIT (1-t) 597.9 751.9
Capex. - 293.4
Inc. NWC 9.6 10.6
Free Cash Flow (FCF) 588.3 447.9

Interest 217.8 481.8

Interest (t) 82.8 183.1
N.I. = EBIT (1-t) - Interest + Interest (t) 462.8 453.2
Net Debt Proceeds (243.5) (85.2)
Equity Cash Flow (ECF) 209.7 64.0
38%
Texas High-Speed Rail Corp.
Harvard Business School Case 293072
Case Software # XLS-738

Copyright © 2010 President and Fellows of Harvard College. No part of this product may be
reproduced, stored in a retrieval system or transmitted in any form or by any means—electronic,
mechanical, photocopying, recording or otherwise—without the permission of Harvard Business
School.
Exhibit 2 Projected Ridership and Revenue Composition

A. Projected THSRC Share of Targeted Airline Passenger Traffic

THSRC Market Share (%)

Dallars-Houston Dallas-Scan Antonio
1998 1999 2000 1999 2000 2001
Target Air Market
DFW—interconnect 27% 80% 80% 33% 100% 100%
DFW—local 13% 43% 65% 17% 48% 65%
Love Field—local 12% 30% 60% 16% 36% 60%
Love Field—interconnect nil nil nil nil nil Nil

B. Projected Composition of THSRC Ridership (in thousands of trips)

1998 1999 2000 2001 2002 2003
Total Projected Market
Interconnect air 5,169 5,339 5,516 5,698 5,886 6,080
Local air 5,064 5,231 5,404 5,582 5,766 5,957
Auto 6,667 6,849 7,041 7,238 7,441 7,649
Total trips (000s) 16,900 17,419 17,961 18,518 19,093 19,686

Projected THSRC Share

Interconnect air 0.09 0.4 0.71 0.71 0.71 0.71
Local air 0.07 0.3 0.52 0.62 0.62 0.62
Auto 0.03 0.1 0.17 0.18 0.18 0.18

Projected Captured Riders

Interconnect air 465.2 2,135.60 3,916.40 4,045.60 4,179.10 4,316.80
Local air 354.5 1,569.30 2,810.10 3,460.80 3,574.90 3,693.30
Auto 200 684.9 1,197.00 1,302.80 1,339.40 1,376.80
Commuters 336.6 1,815.90 3,541.60 4,030.60 4,143.40 4,259.40
Other induced 62.4 451.2 904.9 1,070.30 1,103.30 1,137.30
Total riders 1,418.70 6,656.90 12,369.90 13,910.20 14,340.10 14,783.70
Total inter-city 1,019.70 4,389.80 7,923.40 8,809.30 9,093.40 9,387.00

C. Projected Composition of THSRC Revenue

1998 1999 2000
Former air traffic 72% 73% 73%
Former auto traffic 18% 11% 10%
Commuters 6% 11% 12%
Other induced 4% 5% 5%
100% 100% 100%

Source: Company documents.

Exhibit 3 Project Cash Flows (in millions of dollars)

Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Constant dollars

Revenue 8.9 26.8 26.8 94.9 331 603 681.8

Excise tax 0.9 2.7 2.7 9.5 33.1 60.3 68.2
Operating costs 22.5 90 180 180 180
Property taxes 36 36 36 36
Total (cash) costs 0.9 2.7 25.2 135.5 249.1 276.3 284.2
EBITD (constant $) 8 24.1 1.6 -40.6 81.9 326.7 397.6

Nominal dollars
EBITD (nominal $) 9.1 28.7 2 -52.9 111.5 464.6 590.9
Depreciation 79.2 79.2 79.2 79.2
EBIT 9.1 28.7 2 -132.1 32.3 385.4 511.7
Tax @ 38% 3.5 10.9 0.8 -15.1 0 123.7 194.4
EBIAT 5.7 17.8 1.2 -116.9 32.3 261.7 317.2
Depreciation 79.2 79.2 79.2 79.2

Operating cash flow 5.7 17.8 1.2 -37.7 111.5 340.9 396.4

Expenditures (nominal $)
Preliminary 20 20
Development 56 140 84
Right of way 13.5 32.1 184.4
Infrastructure (private) 410.6 657 574.8
Infrastructure (public) 615.9 985.4 862.3
Rolling stock 226.4 283 339.6 283
Net working capital additions 9.9 26.3 32.7 12.5
Additional trainsets, overhauls
Infrastructure renewal

Total expenditures 20 89.5 172.1 1521.3 1925.4 1776.7 292.9 26.3 32.7 12.5
Project free cash flow (FCF) -20 -89.5 -172.1 -1,515.70 -1,907.60 -1,775.50 -330.7 85.2 308.2 383.9

Free Cash Flow (FCF) (20.0) (89.5) (172.1) (1,515.7) (1,907.6) (1,775.5) (330.7) 85.2 308.2 384.0
Debt Cash Flow (DCF) 0 0 0 -328.1 -962.5 -1435.7 -342.9 146 120.3 93.6
Equity Cash Flow (ECF)
2002 2003 2004 2005

711.9 743.4 776.3 810.6

71.2 74.3 77.6 81.1
180 180 180 180
36 36 36 36
287.2 290.3 293.6 297.1
424.7 453.1 482.7 513.5

659.5 735.3 818.6 910

88.6 88.6 88.6 88.6
570.9 646.7 730 821.4
217 245.8 277.4 312.1
354 401 452.6 509.3
88.6 88.6 88.6 88.6

442.6 489.6 541.2 597.9

7.4 8.1 8.8 9.6

187.9

195.3 8.1 8.8 9.6

247.3 481.5 532.4 588.2

247.2 481.4 532.4 588.3

65.7 36.7 6.2 -25.7
Exhibit 3 (continued)

Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Constant dollars

Revenue 846.6 884.2 923.5 964.6 1,007.70 1,039.20 1,071.70 1,105.30 1,139.90 1,175.70 1,212.50 1,250.50 1,289.70
Excise tax 9.9
Operating costs 180 180 180 180 180 180 180 180 180 180 180 180 180
Property taxes 36 36 36 36 36 36 36 36 36 36 36 36 36
Total (cash) costs 225.9 216 216 216 216 216 216 216 216 216 216 216 216
EBITD (constant $) 620.7 668.2 707.5 748.6 791.7 823.2 855.7 889.3 923.9 959.7 996.5 1,034.50 1,073.70

Nominal dollars
EBITD (nominal $) 1,149.50 1,293.20 1,430.80 1,582.10 1,748.50 1,899.80 2,063.70 2,241.30 2,433.20 2,641.30 2,865.90 3,109.10 3,372.10
Depreciation 103.3 106.9 122.9 123.2 123.7 128.2 132.9 138.1 143.5 149.1 155.3 156.7 78.9
EBIT 1,046.20 1,186.30 1,307.90 1,458.90 1,624.80 1,771.60 1,930.80 2,103.20 2,289.70 2,492.20 2,710.60 2,952.40 3,293.20
Tax @ 38% 397.6 450.8 497 554.4 617.4 673.2 733.7 799.2 870.1 947 1,030.00 1,121.90 1,251.40
EBIAT 648.6 735.5 810.9 904.5 1,007.30 1,098.40 1,197.10 1,304.00 1,419.60 1,545.10 1,680.60 1,830.50 2,041.80
Depreciation 103.3 106.9 122.9 123.2 123.7 128.2 132.9 138.1 143.5 149.1 155.3 156.7 78.9

Operating cash flow 751.9 842.4 933.8 1,027.70 1,131.00 1,226.60 1,330.00 1,442.10 1,563.10 1,694.20 1,835.90 1,987.20 2,120.70

Expenditures (nominal $)

Preliminary
Development
Right of way
Infrastructure (private)
Infrastructure (public)
Rolling stock
Net working capital additions 10.6 11.5 12.6 13.7 15 13.9 15 16.2 17.4 18.8 20.2 21.8 23.5
Additional trainsets, overhauls 287.8 66.6 314.3 79.5 83 86.8 90.7 94.8 99
Infrastructure renewal 5.6 5.8 6.1 6.4 10 10.4 10.9 16.3 17 17.8 26 27.1 28.4

Total expenditures 304 83.9 333 20.1 25 103.8 108.9 119.3 125.1 131.4 145.2 48.9 51.9

Project free cash flow (FCF) 448 758.5 600.8 1,007.60 1,106.00 1,122.80 1,221.10 1,322.80 1,438.00 1,562.90 1,690.70 1,938.30 2,068.80
Source: Company documents.
Exhibit 4 Net Present Value of Project Free Cash
Flows (FCF)

Discount Rate NPV of Project FCF

7.00% $14,653
7.50 10,643
8.00 7,868
8.50 5,858
9.00 4,354
9.50 3,199
10.00 2,296
10.50 1,579
11.00 1,002
11.50 534
12.00 150
12.50 -166
13.00 -427
13.50 -644
14.00 -825
14.50 -975
15.00 -1,101
15.50 -1,205
16.00 -1,292
16.50 -1,364
17.00 -1,423
17.50 -1,471
18.00 -1,510

Source: Casewriter.

Note: Net present values are computed as the present value,

at each discount rate, of the project free cash flows presented
in Exhibit 3 together with a terminal value. The terminal value
in each case is the discounted value (at each rate) in 2018 of a
growing perpetuity. The first (year 2019) cash flow of the
perpetuity equals $2,068.8 x 1.045 and it is assumed to grow at
4.50% per year.
Exhibit 6 Summary of Financing Plan, July 1991 (in millions of dollars)

Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Equity issues
Founders equity 30 30
Venture equity 55 50
Construction equity a 1,500.00
Debt issues
Tax exempt b 350 620 650 280
Taxable 360 1,630.00 1,020.00 390
Debt repayments
Tax exempt b -8.7 -26.6 -49 -63.1 -68.6 -74.6 -81.1 -88.2 -95.9 -104.3
Taxable c -248.3 -248.3 -248.3 -248.3 -248.3 -248.3
Net debt issued 341.3 953.4 2,231.00 1,236.90 73.1 -322.9 -329.4 -336.5 -344.2 -352.6

Annual net financing 30 85 1,550.00 341.3 953.4 2,231.00 1,236.90 73.1

Cumulative financing 30.0 115.0 1,665.0 2,006.3 2,959.7 5,190.7 6,427.6 6,500.7

Year 2,006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Debt issues
Taxable c,d 1,911.40 456 437.1 480.1 528.2 480.6 520.2 563.6 609.5 660.4 713.3 772 835
Debt repayments
Tax exempt b -123.4 -134.2 -145.9 -158.7 -172.6 -187.7 -204.1
Net debt issued 1,788.00 321.8 291.2 321.4 355.6 292.9 316.1 563.6 609.5 660.4 713.3 772 835

Source: Company documents.

a
Construction equity would be issued at the end of 1994 or the beginning of 1995.
b
Tax-exempt debt is assumed to be issued at the beginning of 1995; the first principal repayment is due during the same year. All tax-exempt issues are serviced with level payments of principal and interest
through 2012, when the supporting letter of credit will expire.
c
Taxable debt excludes $37.8 million of capitalized interest during 1996.
d
Taxable debt is assumed to be entirely refinanced in 2006 and additional, new debt of $1.9 billion issued, bringing total taxable debt outstanding in 2006 to $3.65 billion. Subsequently, taxable debt is issued in
amounts required to maintain annual interest coverage (EBITD/interest) of 3x.
 2005

-113.4
-248.3
-361.7

principal and interest

taxable debt is issued in
 After tax 62%

Total Value Ratio to total Ke or Kd Tax Effect

Equity
60 0.86% 36.00%
105 1.51% 22.5%
1500 21.54% 18.00%
1665
Debt
1900 27.28% 8.75% 5.43%
3400 48.82% 10.50% 6.51%
5300
Total 6965

E/V 0.24 WACC

D/V 0.76

Beta Asset 0.9 Online data

Beta equity 3.76

Rm 8.60%
Rm-Rf 7.50% Assumed
Cost of equity 36.84%
Weighted Avg.

0.31%
0.34%
3.88%
4.53%

1.48%
3.18%
4.66%

9.18%
Exhibit 7 Project and Financing Cash Flows with Hypothetical Modified Financing Program (in millions of dollars)

Year 1992 1993 1994 1995 1996 1997 1998 1999 2000

1. EBITD (Nominal $) 0 0 0 9.1 28.7 2 -52.9 111.5 464.6

2. Tax exempt interest 30.6 84.1 138.7 158.9 153.4 147.4
3. Taxable interest 154.6 191.3 191.3 177.6
4. Depreciation 79.2 79.2 79.2
5. Income (loss) before tax -21.5 -55.4 -291.2 -482.3 -312.4 60.4
6. Tax @ 38%
7. Net income/(loss) -21.5 -55.4 -291.2 -482.3 -312.4 60.4
8. Depreciation 79.2 79.2 79.2
9. Levered operating cash flow 0 0 0 -21.5 -55.4 -291.2 -403.1 -233.2 139.6

Expenditures
10. Preliminary 20 20
11. Development 56 140 84
12. Right of way 13.5 32.1 184.4
13. Infrastructure (private) 410.6 657 574.8
14. Infrastructure (public) 615.9 985.4 862.3
15. Rolling stock 226.4 283 339.6 283
16. Net working capital additions 9.9 26.3 32.7
17. Additional trainsets, overhauls
18. Infrastructure renewal
19. Total expenditures 20 89.5 172.1 1,521.30 1,925.40 1,776.70 292.9 26.3 32.7

Debt Financing
20. Tax-exempt debt issued 350 620 650 280
21. Taxable debt issued 400 1,030.00 350
22. Federal trust funds in/(out) 80 750 1,200.00 670
23. Tax-exempt debt repaid -8.7 -26.6 -49 -63.1 -68.6 -74.6
24. Taxable debt repaid -130.1 -130.1
25. Net New Debt 0 0 0 421.3 1,743.40 2,831.00 1,236.90 -198.7 -204.7
26. Total private debt outstanding 341.3 1,334.70 2,965.70 3,532.60 3,333.90 3,129.20
27. Federal financing outstanding 80 830 2,030.00 2,700.00 2,700.00 2,700.00
28. Total debt outstanding 421.3 2,164.70 4,995.70 6,232.60 6,033.90 5,829.20
29. Total Funding Need (cash flow) -20 -89.5 -172.1 -1,121.50 -237.4 763.1 540.9 -458.2 -97.8
30. Use of cash savings from prior year 0 10 5.5 883.4 1.9 0 0 0 0
31. Increase in cash savings (cash use) -10 -5.5 -883.4 -1.9 0 0 0 0 0
32. Equity Cash Flow -30 -85 -1,050.00 -240 -235.5 763.1 540.9 -458.2 -97.8

Equity Financing
33. Founders equity issued 30 30
34. Venture equity issued 55 50
35. Construction equity issued 1,000.00
36. Other equity issued 240 235.5
37. Total Equity Issued 30 85 1,050.00 240 235.5 0 0 0 0

Free Cash Flow (FCF) (20.0) (89.5) (172.1) (1,512.2) (1,896.7) (1,774.7) (266.6) 164.4 511.1
- - - 390.7 1,659.3 2,537.8 807.5 (622.6) (608.9)
- - - 394.2 1,670.2 2,538.6 871.6 (543.4) (406.0)
Debt Cash Flow (DCF) - - - (408.1) (1,712.5) (2,635.7) (1,012.9) 146.0 120.3
Equity Cash Flow (ECF) (20.0) (89.5) (172.1) (1,121.5) (237.4) 763.1 540.9 (458.2) (97.8)
DCF+ECF (20.0) (89.5) (172.1) (1,529.6) (1,949.9) (1,872.6) (472.0) (312.2) 22.5
Int. + N.I. + Dep. - Capex. - Inc. NWC (20.0) (89.5) (172.1) (1,512.2) (1,896.7) (1,774.6) (345.8) 85.2 431.9
- - - -17.4 -53.2 -98.0 -126.2 -397.4 -409.4
 2001 2002 2003 2004 2005

590.9 659.5 735.3 818.6 910

140.8 133.7 126 117.6 108.5
164 150.3 136.7 123 109.3
79.2 88.6 88.6 88.6 88.6
206.9 286.9 384.1 489.4 603.6
100.6 229.4
206.9 286.9 384.1 388.8 374.2
79.2 88.6 88.6 88.6 88.6
286.1 375.5 472.7 477.4 462.8

12.5 7.4 8.1 8.8 9.6

187.9

12.5 195.3 8.1 8.8 9.6

-81.1 -88.2 -95.9 -104.3 -113.4

-130.1 -130.1 -130.1 -130.1 -130.1
-211.3 -218.3 -226.1 -234.5 -243.6
2,918.00 2,699.70 2,473.70 2,239.30 1,995.80
2,700.00 2,700.00 2,700.00 2,700.00 2,700.00
5,618.00 5,399.70 5,173.70 4,939.30 4,695.80
62.3 -38.1 238.5 234.1 209.6
0 0 0 0 0
0 0 0 0 0
62.3 -38.1 238.5 234.1 209.6

0 0 0 0 0

657.6 552.8 815.8 797.8 759.6

(595.3) (590.9) (577.3) (563.7) (550.0)
(321.6) (285.4) (243.0) (298.3) (378.6)
93.6 65.7 36.7 6.2 (25.7)
62.4 (38.1) 238.6 234.2 209.7
156.0 27.6 275.3 240.4 184.0
578.4 464.2 727.3 709.2 671.0
-422.4 -436.6 -452.0 -468.8 -487.0
Exhibit 7 (continued)

Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

1. EBITD (Nominal $) 1,149.50 1,293.20 1,430.80 1,582.10 1,748.50 1,899.80 2,063.70 2,241.30 2,433.20 2,641.30 2,865.90 3,109.10
2. Tax exempt interest 98.6 87.8 76 63.3 49.4 34.3 17.9
3. Taxable interest 383.2 431.1 476.9 527.4 582.8 633.3 687.9 747.1 811.1 880.4 955.3 1,036.40
4. Depreciation 103.3 106.9 122.9 123.2 123.7 128.2 132.9 138.1 143.5 149.1 155.3 156.7
5. Income (loss) before tax 564.5 667.4 755 868.3 992.6 1,104.10 1,225.00 1,356.10 1,478.70 1,611.70 1,755.30 1,916.00
6. Tax @ 38% 214.5 253.6 286.9 329.9 377.2 419.5 465.5 515.3 561.9 612.5 667 728.1
7. Net income/(loss) 350 413.8 468.1 538.3 615.4 684.5 759.5 840.8 916.8 999.3 1,088.30 1,187.90
8. Depreciation 103.3 106.9 122.9 123.2 123.7 128.2 132.9 138.1 143.5 149.1 155.3 156.7
9. Levered operating cash flow 453.3 520.7 591 661.5 739.1 812.7 892.4 978.9 1,060.30 1,148.40 1,243.60 1,344.60

Expenditures
10. Preliminary
11. Development
12. Right of way
13. Infrastructure (private)
14. Infrastructure (public)
15. Rolling stock
16. Net working capital additions 10.6 11.5 12.6 13.7 15 13.9 15 16.2 17.4 18.8 20.2 21.8
17. Additional trainsets, overhauls 287.8 66.6 314.3 79.5 83 86.8 90.7 94.8 99
18. Infrastructure renewal 5.6 5.8 6.1 6.4 10 10.4 10.9 16.3 17 17.8 26 27.1
19. Total expenditures 304 83.9 333 20.1 25 103.8 108.9 119.3 125.1 131.4 145.2 48.9

Debt Financing
20. Tax-exempt debt issued
21. Taxable debt issued 2,738.20 456 437.1 480.1 528.2 480.6 520.2 563.6 609.5 660.4 713.3 772
22. Federal trust funds in/(out) -2,700.00
23. Tax-exempt debt repaid -123.4 -134.2 -145.9 -158.7 -172.6 -187.7 -204.1
24. Taxable debt repaid
25. Net New Debt -85.2 321.9 291.1 321.5 355.6 292.9 316.2 563.6 609.5 660.4 713.3 772
26. Total private debt outstanding 4,610.60 4,932.40 5,223.60 5,545.00 5,900.60 6,193.50 6,509.60 7,073.20 7,682.70 8,343.10 9,056.40 9,828.40
27. Federal financing outstanding 0 0 0 0 0 0 0 0 0 0 0 0
28. Total debt outstanding 4,610.60 4,932.40 5,223.60 5,545.00 5,900.60 6,193.50 6,509.60 7,073.20 7,682.70 8,343.10 9,056.40 9,828.40
29. Total Funding Need (cash flow) 64.1 758.7 549.1 962.9 1,069.70 1,001.80 1,099.70 1,423.20 1,544.70 1,677.40 1,811.70 2,067.70
30. Use of cash savings from prior year 0 0 0 0 0 0 0 0 0 0 0 0
31. Increase in cash savings (cash use) 0 0 0 0 0 0 0 0 0 0 0 0
32. Equity Cash Flow 64.1 758.7 549.1 962.9 1,069.70 1,001.80 1,099.70 1,423.20 1,544.70 1,677.40 1,811.70 2,067.70

Equity Financing
33. Founders equity issued
34. Venture equity issued
35. Construction equity issued
36. Other equity issued
37. Total Equity Issued 0 0 0 0 0 0 0 0 0 0 0 0

Source: Casewriter.
 2018

3,372.10

1,124.00
78.9
2,169.20
824.3
1,344.90
78.9
1,423.80

23.5

28.4
51.9

835

835
10,663.40
0
10,663.40
2,206.90
 0
0
2,206.90