Burlington Northern Santa Fe Railway Investment

Alexandra Westman

Plan for the Future Expand the Burlington Northern Santa Fe

Railway to the Northern States Allocation of $600 million dollars towards

investment Projects are not mutually exclusive Looking for a 5 year outlook

Investment Opportunities

Minnesota LineNorth Dakota LineMontana Line

(*** Ranked in Order of Preference***)

Minnesota Line Freight – Frac Sand Direction – From Wisconsin and Minnesota

to the oil fields of North Dakota Freight loads will increase for the next 10

years and then level off for another 15 years

Requires 275 miles of track

Minnesota Line Opportunities

o Providing a direct route to Fargo, ND

o Growing number of Frac Sand mines in WI and MN

o Demand for Frac Sand has shown positive growth

o Aligns with the goal of the U.S. to become more self-reliant

Riskso Competition from

the Union Pacific Railroad

o Opponents to the mining of Frac Sand due to the health risks from the sand blowing into the air

North Dakota Line Freight – Oil Direction – Jamestown, ND to Minot, ND Oil tanker loads expect to increase for the

next 20 years and then level off for another 30 years

Requires 200 miles of track

North Dakota Line Opportunities

o ND oil fields will produce over the next 50 years

o Long term potential with a healthy return

o Promising geological explorations in the area, leading to double the output of oil

o Creating an established tanker line for future Shale Oil fields

Riskso Possible halt of

drilling in the area due to environmental concerns

o Carrying a hazardous material

Montana Line Freight – Coal Direction – Harve, MT to Billings, MT Freight loads are expected to decrease for

the next 5 years and then level off for another 20 years

Requires 240 miles of track

Montana Line Opportunities

o Coal is a highly used source of energy

o Harve Coal Mine will produce for another 20 years

o Montana coal mines have provided BNSF with cash flow for over 50 years and are a loyal customer

Risk o Coal is considered a

dirty source of energy

o Many energy companies have shut down their coal powered energy plants

o There will be an continual decrease in demand for coal

Summary of Each InvestmentMinnesota

LineNorth

Dakota Line

Montana Line

Payback Period

3.14 years 3.06 years 3.47 years

Net Present Value

$76,249,839

$69,703,710

$7,092,130

Internal Rate of Return

21.62% 21.62% 13.09%

Modified Internal Rate of Return

17.62% 17.45% 12.59%

Final Recommendation The final recommendation for this project would be to invest in both the Minnesota and North Dakota line since the projects are not mutually exclusive. Each one of these investments exceeds the cost of capital and both have a positive Net Present Value. The Minnesota Line has the highest NPV of $76,249,839, but North Dakota is not far behind with $69,703,710. The internal rate of return for each one is the same at 21.62%. The MIRR is just slightly higher for MN than for ND at 17.62% and 17.45% which does not make a drastic difference, but MIRR gives the most accurate outlay of an investments profitability; showing that MN would be the number one choice. Also the freight loads for each line are expected to increase in the upcoming years. The ND line is better in this sense because it will increase for 20 years and then level off for another 30, while MN will only increase for 10 years and then level off for another 15.

Every investment has its risks, but the MN and ND opportunities outweigh their risks when determining whether to invest or not. The Montana Line is underwhelming lower in each of evaluations except payback method which gives the least accurate information. The MT line also poses the most risk as an investment because the use and mining of coal is depleting while oil and frac sand are increasing or staying steady. Overall the MN and ND line have the largest amount of potential, and when combined for an investment they will offer a large amount of return for many years to come. &

Appendix Payback

NPV

Railroad Line Minnesota Line N. Dakota Line Montana LineInvestment 275,000,000$ 260,000,000$ 264,000,000$

Years 275,000,000$ 260,000,000$ 264,000,000$ 1 74,325,000$ 200,675,000$ 76,100,000$ 183,900,000$ 78,000,000$ 186,000,000$ 2 86,023,750$ 114,651,250$ 84,400,000$ 99,500,000$ 76,368,000$ 109,632,000$ 3 99,127,313$ 15,523,938$ 93,120,000$ 6,380,000$ 75,202,960$ 34,429,040$ 4 113,476,409$ 0.14 102,032,000$ 0.06 73,302,871$ 0.475 129,747,871$ 3.14 111,615,200$ 3.06 71,265,785$ 3.47

Minnesota Line N. Dakota Line Montana Line275,000,000$ 260,000,000$ 264,000,000$

Years Pvif MN PV ND PV MT PV1 0.893 74,325,000$ 66,372,225$ 76,100,000$ 67,957,300$ 78,000,000$ 69,654,000$ 2 0.797 86,023,750$ 68,560,929$ 84,400,000$ 67,266,800$ 76,368,000$ 60,865,296$ 3 0.712 99,127,313$ 70,578,647$ 93,120,000$ 66,301,440$ 75,202,960$ 53,544,508$ 4 0.636 113,476,409$ 72,170,996$ 102,032,000$ 64,892,352$ 73,302,871$ 46,620,626$ 5 0.567 129,747,871$ 73,567,043$ 111,615,200$ 63,285,818$ 71,265,785$ 40,407,700$

PV of Inflows 351,249,839$ 329,703,710$ 271,092,130$ PV of Outflows 275,000,000$ 260,000,000$ 264,000,000$ NPV 76,249,839$ 69,703,710$ 7,092,130$

InvestmentRailroad Line

IRR

MIRR

Appendix Railroad Line Minnesota Line N. Dakota Line Montana LineInvestment (275,000,000)$ (260,000,000)$ (264,000,000)$

Years1 74,325,000$ 76,100,000$ 78,000,000$ 2 86,023,750$ 84,400,000$ 76,368,000$ 3 99,127,313$ 93,120,000$ 75,202,960$ 4 113,476,409$ 102,032,000$ 73,302,871$ 5 129,747,871$ 111,615,200$ 71,265,785$

IRR 21.62% 21.62% 13.09%

Railroad Line Minnesota Line N. Dakota Line Montana LineInvestment (275,000,000)$ (260,000,000)$ (264,000,000)$

Years1 74,325,000$ 76,100,000$ 78,000,000$ 2 86,023,750$ 84,400,000$ 76,368,000$ 3 99,127,313$ 93,120,000$ 75,202,960$ 4 113,476,409$ 102,032,000$ 73,302,871$ 5 129,747,871$ 111,615,200$ 71,265,785$

MIRR 17.62% 17.45% 12.59%

Appendix Cash Flows

Minnesota Line N. Dakota Line Montana Line Minnesota Line N. Dakota Line Montana LineEBDT 118,875,000$ 120,000,000$ 124,000,000$ 136,706,250$ 132,000,000$ 120,280,000$ - Depreciation 7,500,000$ 10,250,000$ 9,000,000$ 10,000,000$ 13,000,000$ 10,500,000$ EBT 111,375,000$ 109,750,000$ 115,000,000$ 126,706,250$ 119,000,000$ 109,780,000$ Taxes 44,550,000$ 43,900,000$ 46,000,000$ 50,682,500$ 47,600,000$ 43,912,000$ EAT 66,825,000$ 65,850,000$ 69,000,000$ 76,023,750$ 71,400,000$ 65,868,000$ + Depreciation 7,500,000$ 10,250,000$ 9,000,000$ 10,000,000$ 13,000,000$ 10,500,000$ Cash Flow 74,325,000$ 76,100,000$ 78,000,000$ 86,023,750$ 84,400,000$ 76,368,000$

Year 2Year 1

Minnesota Line N. Dakota Line Montana Line Minnesota Line N. Dakota Line Montana Line Minnesota Line N. Dakota Line Montana Line157,212,188$ 145,200,000$ 116,671,600$ 180,794,016$ 159,720,000$ 113,171,452$ 207,913,118$ 175,692,000$ 109,776,308$

12,000,000$ 15,000,000$ 13,000,000$ 12,500,000$ 15,500,000$ 13,500,000$ 12,500,000$ 15,500,000$ 13,500,000$ 145,212,188$ 130,200,000$ 103,671,600$ 168,294,016$ 144,220,000$ 99,671,452$ 195,413,118$ 160,192,000$ 96,276,308$

58,084,875$ 52,080,000$ 41,468,640$ 67,317,606$ 57,688,000$ 39,868,581$ 78,165,247$ 64,076,800$ 38,510,523$ 87,127,313$ 78,120,000$ 62,202,960$ 100,976,409$ 86,532,000$ 59,802,871$ 117,247,871$ 96,115,200$ 57,765,785$ 12,000,000$ 15,000,000$ 13,000,000$ 12,500,000$ 15,500,000$ 13,500,000$ 12,500,000$ 15,500,000$ 13,500,000$ 99,127,313$ 93,120,000$ 75,202,960$ 113,476,409$ 102,032,000$ 73,302,871$ 129,747,871$ 111,615,200$ 71,265,785$

Year 5Year 3 Year 4