After reading the article on Macquarie bank (and a partner) leasing the toll road from Indiana, I was left with the question What is the implied rate of return for the state of Indiana. Figuring out that answer allowed me to do some time value of money calculations which are great fun. I took the numbers from the article; 17 year payback period, 75 total years, years 18 - 75 generating $21B in profit and purchase price of $3.85B and tried to calculate the present value of the cash flow. To do this I needed the Rate of Return or Interest rate. I plugged all of this into an Excel spreadsheet and after some fumbling around getting all of the formulas to use cell references instead of hard coded numbers, I ran Solver to changed the interest rate so the present value of the cash flows equaled the purchase price. The rate turned out to be 4.23% which isn't a bad rate of return for government investments.
Macquarie Bank, of course, would use different numbers for profit. The article only gave me the amount the Democrats in the Indiana legislature thought the road could make not what Macquarie Bank thought they could make. But that number is irrelevant to Indiana taxpayers because the state would never be able to make the same amount as Macquarie. That being said, I would have pushed for 5%.
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