Project finance modelling test

Based on the most helpful WSO content, here’s how you can approach these project finance modeling test questions:

1. Build a Cash Flow Statement and P&L for the project SPV:

   • Start with revenue assumptions and operating costs to calculate EBITDA.
   • Deduct depreciation and interest expenses to arrive at EBT, then apply taxes to get net income.
   • For the cash flow statement, begin with net income, add back non-cash items like depreciation, adjust for changes in working capital, and account for capex and debt service to calculate CFADS (Cash Flow Available for Debt Service).

2. Calculate the Project IRR (PIRR):

   • Use the unlevered cash flows (CFADS) to calculate the PIRR. This involves discounting the CFADS to find the rate at which the NPV equals zero.

3. Calculate the Equity IRR (EIRR):

   • Use the levered cash flows (post-debt service cash flows) to calculate the EIRR. This reflects the return to equity investors.

4. Determine the acquisition price for a 10% EIRR:

   • Use the levered cash flows and solve for the acquisition price that results in a 10% EIRR. This can be done using Excel’s IRR or Goal Seek functions.

5. Updated acquisition price with senior debt:

   • Incorporate the senior debt into the model. Adjust the cash flows to reflect debt drawdowns during construction, interest payments, and principal repayments. Recalculate the acquisition price that maintains the 10% EIRR.

6. Levers to increase the purchase price:

   • Options include:
     • Extending the debt tenor to reduce annual debt service.
     • Negotiating lower interest rates or better debt terms.
     • Increasing project revenues (e.g., higher tariffs or longer contracts).
     • Reducing operating costs or capex.
     • Introducing mezzanine financing or shareholder loans.
   • Recommendations depend on the feasibility and risk appetite of your company.

For CFADS and FCF struggles, focus on: - CFADS: Start with EBITDA, subtract taxes, capex, and changes in working capital, then add back non-cash items like depreciation. - FCF: Take CFADS and subtract debt service (interest and principal payments).

If you need more detailed examples or templates, consider reviewing resources like the WSO Project Finance Modeling Guide or reaching out to peers for specific corrections. For further practice, you can explore case studies like those mentioned in the WSO threads on infrastructure investment roles or real estate modeling tests.

Sources: https://www.wallstreetoasis.com/forum/real-estate/megafund-repe-modeling-test?customgpt=1, PE interview question - If you can only know 3 things for an investment analysis?, Tutorial: How to Model a Real Estate Development Construction Loan, Multi-Family Acquisitions Excel Test, Specialty Lending (GS/TPG) - Any insights?