Investment Considerations in Revenue Bond Projects

Understanding Investment Considerations with Mathematics

1. Revenue Potential

Revenue Potential: This is the total expected income from the project. It's calculated by estimating

the amount of service or goods the project will sell and at what price.

Example: If a toll bridge expects 100,000 crossings a year at $5 per crossing, its annual revenue

potential is 100,000 crossings * $5/crossing = $500,000.

2. Operating Costs

Operating Costs: These are the expenses required to maintain and operate the project. It includes

salaries, maintenance, and other operational expenses.

Example: If the annual cost of staff, maintenance, and supplies for the toll bridge is $200,000, then

this is the operating cost.

3. Revenue to Debt Service Ratio

Revenue to Debt Service Ratio: This ratio indicates the project's ability to cover its debt obligations

with its revenue. It's calculated as (Net Revenue) / (Debt Service).

Example: If the toll bridge's net revenue (after operating costs) is $300,000 and the annual debt

service is $150,000, then the ratio is $300,000 / $150,000 = 2. This means the project generates

twice the revenue needed to cover its debt.