Mr Burt, your calculations are flawed – The Royal Gazette | Bermuda News, Business, Sports, Events, & Community

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Mr Burt, your calculations are flawed

Dear Sir,

Like many Bermudians, I am following the airport redevelopment project closely.

This is an important capital project that, I believe, deserves real scrutiny by the voting public.

There have been many claims thrown around about the future earnings potential of the airport. At a recent town hall meeting, PLP Shadow Minister of Finance David Burt calculated the future earnings of the Bermuda airport to exceed some $2 billion.

An alarming figure, to be sure, but the method used to calculate it is probably even more curious.

Indeed, Mr Burt accumulates the current earnings of the airport over 30 years at a 2.5 per cent inflation rate.

This is unlike any project valuation method I have ever seen. I have an undergraduate degree in finance, as does Mr Burt, so I find it unlikely that he would not understand such a basic concept as net present value — or how to complete a discounted statement of cash flows. Mr Burt must understand that a dollar today is worth more than it would be 30 years from now — in much the same way as a dollar today is worth much less than it was 30 years ago.

Rather than accumulate using the rate of inflation, Mr Burt should have discounted these future cash flows to the present time period using some opportunity cost of capital. Not the rate of inflation.

I believe Mr Burt to be intelligent and often appreciate his contributions.

However, as someone who wants to be finance minister, Mr Burt must understand something as basic as the net present value of future cash flows to value projects.

I don't know which would be worse: that he does not know this or that he is deliberately misleading people in his purposely outsized calculations.

RJW

David Burt, the Shadow Minister of Finance (File photograph by Akil Simmons)

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Published August 24, 2015 at 9:00 am (Updated August 24, 2015 at 2:05 am)

Mr Burt, your calculations are flawed

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