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Executive Summary Acela

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Executive Summary
Statement of the Problems
The National Railroad Passenger Corporation (Amtrak) is a government founded rail transportation company that was created in 1970 to provide passengers with means of transportation. Beginning 2002, the government would no longer fund improvements and expansions for Amtrak. From looking at the income statement, we can see that Amtrak has never been profitable and has experienced an increasing deficit in recent years. To produce income,
Amtrak decided to build “Acela;” a set of high speed trains in northeast America. In order to decide the best plan of financing this project, Amtrak and it’s advisor, Babcock & Brown
Financial Corporation (BBFC) asked BNY Capital Funding LLC (BNYCF) to come up with lease-financing proposals. On April 30, 1999, Arlene Friner, the CFO of Amtrak presented these proposals for financing Acela to her Treasury team. A present value analysis is used to determine whether borrowing money, leasing the equipment, or relying on federal funding is the best option for financing the project.
Discussion
Acela is projected to produce $180 million in net revenue by 2002. This includes the purchase of 15 high-speed locomotives and 20 train sets of $750 million, of which Amtrak needs financing for six locomotives and seven train sets of $267.9 million. Amtrak presents three options for financing the Acela purchases and becoming a profitable entity by 2002:
• Borrow money to fund the purchases
• Lease equipment from BNYCF or other financial institution
• Continue to rely on federal funding
Amtrak was offered a 20-year bond at a 6.75% annual interest rate with semiannual payments starting December 1999. The equipment would be the collateral for the loan, which is beneficial to Amtrak, as they had no other current assets. Amtrak had previously issued bonds, which would increase the amount they have in the market. If

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