Burlington Northern Santa Fe Railway Investment

1. Burlington Northern Santa Fe Railway Investment Alexandra Westman

2. 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

3. Investment Opportunities • Minnesota Line • North Dakota Line • Montana Line (*** Ranked in Order of Preference***)

4. 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

5. Minnesota Line • Opportunities • Providing a direct route to Fargo, ND • Growing number of Frac Sand mines in WI and MN • Demand for Frac Sand has shown positive growth • Aligns with the goal of the U.S. to become more self-reliant • Risks • Competition from the Union Pacific Railroad • Opponents to the mining of Frac Sand due to the health risks from the sand blowing into the air

6. 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

7. North Dakota Line • Opportunities • ND oil fields will produce over the next 50 years • Long term potential with a healthy return • Promising geological explorations in the area, leading to double the output of oil • Creating an established tanker line for future Shale Oil fields • Risks • Possible halt of drilling in the area due to environmental concerns • Carrying a hazardous material

8. 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

9. Montana Line • Opportunities • Coal is a highly used source of energy • Harve Coal Mine will produce for another 20 years • Montana coal mines have provided BNSF with cash flow for over 50 years and are a loyal customer • Risk • Coal is considered a dirty source of energy • Many energy companies have shut down their coal powered energy plants • There will be an continual decrease in demand for coal

10. Summary of Each Investment

11. 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.

12. 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. &

13. Appendix • Payback • NPV

14. Appendix • IRR • MIRR

15. Appendix • Cash Flows