Need help: Comparing contract values by evaluating cost of debt vs equity
I have been asked to develop a spreadsheet which will allow for separate contract prices for large projects to be compared. The expectation is that for each scenario there will be 2 contract bids: (i) one will not include any offer of financing and priced at x; and (ii) the other will have a financing offer tied to the contract but the price of the contract will be above x.
The financing which is available for the second contract is expected to be for 12 years at a fixed interest rate without any principal repayments for 2 years. These terms cannot be achieved for the first contract. For the purposes of this assessment it should be assumed that the first contract would be paid with equity.
The sheet needs to demonstrate which contract price is the best value for the company based on the total cost of each option (contract value + cost of debt or cost of equity).
Grateful for any advice on the best way to make this calculation and how to structure the spreadsheet.
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