Project Funded by 100% Debt - IRR? MOIC?
So I'm currently working in a project finance model and I was asked to calculate investor economics if 100% is debt. I understand that both IRR and MOIC can't be calculated.
- Am I wrong?
- What other returns metrics can be used in this case of fully debt? To give the investor an idea of his/her economics.
IRR and MOIC are infinite... Maybe show the project-level return and actual payout to equity at certain hurdles?
Your IRR as the equity is basically infinite: in layman’s terms. you earned profit without committing a single penny of your own funds.
As others have said, it's essentially infinite if the equity party didn't contribute anything. I'm not sure what metrics you could use if equity doesn't contribute capital but gets returns.
I guess you could NPV the cash flows at the equity hurdle rate.
If trying to show the ROI on investment, I would normally want to see what unlevered yields on cost looked like without leverage.
Could make a table of levered vs. unlevered returns (levered is of course infinite / n.m.).
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