Help Equity Waterfall Still has Ending Balance After All Distributions
I have a pretty simply Equity Waterfall that has 2 promotes
1: 7% IRR 10%/90%
2: 11% IRR 25%/90%
3: Remainder
The model has the cashflow sufficient to pass the first hurdle 7% but only by a smidge.
When it gets to the second hurdle, it distributes as much as it can, but the required return of 11% is greater than the cash flow and so I fall short and once all the distribution are gone, there is a remaining capital account balance that continues until the model ends.
It only reaches an 8%IRR on the second hurdle
Is this wrong? Should it never come out this way?
Here is an image of the watefall: See how there is an $8m balance ending after the capital event.
If there was a zero balance in a capital account for which the hurdle IRR had not been reached, you could be 100% sure that it was wrong. You should have a non-zero capital account balance if you're below the hurdle.
Ok thank goodnees. So i should just leave it hanging out there? it wont look weird to anyone?
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