Taxi Medallion Case question
Hi guys,
Having an interview coming up very soon and need some help in figuring out the following question. Would really appreciate some help. Thanks.
What is the estimated value of a taxi medallion in New York City?
http://blogs.reuters.com/felix-salmon/2011/10/21/why-taxi-medallions-co…
See: Suits
What should I be looking for in suits? And it's meant to be one of those back of the envelope types of questions
Just gave it an attempt. I hope you guys could give me any suggestions or comments with my approach.
I'm basically gonna look for the value of a medallion at the break even point, which means I will set revenue equal to costs.
REVENUES:
Assume population of 2 mil in NYC ---> Assume target group is working population (ages 18-55) at 50% of population = 1 mil ---> Only 1/5th take cabs regularly (Others drive, carpool, public transport, etc...) at 200,000.
sample will take 2 cab rides, 5 days a week during peak hours --> average fare is $10.
Weekly revenue from sample = 1 mil * 1/5 * 5 days * 2 rides/day * $10 = $20 mil Annual revenue = $20 * 50 = $1 bil
COSTS:
Assume 15,000 taxis in NYC Taxis are replaced every 3 years, so every year 1/3 of taxi sample is replaced. i.e 5,000 new cabs are purchased every year @ $20,000 = 100 mil Maintenance costs: $5000/cab * 15,000 cabs = $75 mil Annual repair + insurance costs = $25 mil Drivers keep 50% of fare = $500 mil. Total costs excluding medallion purchase costs = $700 mil
Since we're looking at the break even case, let medallion costs = 1 bil - 0.7 bil = 300 mil
So if we divide total medallion costs by total number of taxis (15,000), the value of a medallion is approximately $20,000 to break even.
This is odd ... why would you know in advance of an interview that you need to know about taxi medallions? And if so, why is your analysis so weak? Most glaring issues: - Ridership is way too high. Don't extrapolate from (non upper) Manhattan to the rest of the city (which is well below 30 MM) - No labor costs? - A medallion is for perpetuity, not a year
Hey thanks for the reply and suggestions NYC. I edited my previous analysis with your input. However I'm not sure how to work with the perpetuity factor. Would appreciate your feedback.
I was just practicing estimation questions and I couldn't really figure this one out. No specific knowledge of medallions required.
it's a simple bond valuation problem IMHO. step one: estimate annual income from the medallion (364 days per year, 24 hours a days, number of riders per hour, average fee per rider, etc) subtract all costs (driver salary, car, insurance, gas, blah blah blah) get cash flow of $x/year step two: value a perpetual bond with that yield
At least one taxi medallion securitization has been done, maybe more. You should be able to get the OM off intex or from sales coverage or sketchy lawyers or something if you don't already have it. That will disclose the exact price and appraisal of the medallions.
If that doesn't work, often the big poppa holdco sponsor company will post bond indentures on deals like that to EDGAR as an 8-k. You could look there if you can't find the data elsewhere.
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