Chapter 4 - Investment requirements

Question 1

Why must a high proportion of cash flow be spent on investment?

Answer 1

Capital intensive business

Question 2

How do railways invest more than its annual cash flow?

Answer 2

Financing activities

Question 3

What happens without regular investment?

Answer 3

Trains continue to run, costs rise for materials and maintenance and service quality and asset value decline. Eating assets

Question 4

Why are investment capabilities important

Answer 4

1. A critical measure of financial stability is whether the railway can manage sufficient investment over time to ensure safety, renew assets and serve new markets
2. Insufficient investment over time risks massive and unmanageable future investment requirements

Question 5

Differentiate funding and financing

Answer 5

1. Funding - who ultimately pays for infrastructure to be built and maintained over its lifetime:
   *can be sourced from users, developer contributions, most commonly - general taxation
2. Financing - capital needed to pay for investment costs up-front - government revenues, government borrowing or private financing