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IRR of an endless schedule of cash flows versus terminal value
I'm too old and haven't thought about this stuff in a while, so... If I create a really long schedule of a cash flows, where cash flows grow 2% a year, I get an IRR of 11.3%. If I take the first five years of the same schedule, then calculate a perpetuity off that (2% perp growth rate, 10% discount...
IRR decomposition / Attribution in LBO
Dear all, I am currently finishing an LBO model and included an overview of value creation in terms of MOIC (equity value bridge incl. ebitda growth, multiple expansion, debt paydown etc.). So far so good. However, I am getting stuck at the following and would love to hear your input: I am trying to...
Should I Include IRR In A Stock Pitch With 12 Month Investment Horizon? Or Is That Too Short?
Is IRR something worth including in a stock pitch if the investment horizon is only 12 months? I'm not sure because I usually like to include it but that feels like a really short time for an IRR.
Should I include IRR in a stock pitch with 12 month investment horizon? Or is that too short?
Is IRR something worth including in a stock pitch if the investment horizon is only 12 months? I'm not sure because I usually like to include it but that feels like a really short time for an IRR.
Calculation of IRR
While calculating the Project IRR, We consider the Upfront and commitment cost of Debt, but not the interest and Repayment. Any reasons
IRR -> Reinvestment Assumption or Myth (and what it actually means)
I've been trying to wrap my head around a downside of using IRR - the reinvestment assumption. I don't really understand the concept on how IRR assumes that we reinvest at the IRR, if IRR is for discounting backwards. Would be great if someone had an analogy or example so I can understand the actual...
Costs in IRR calculations (Project Finance)
Hello, For IRR calculations: 1) I have calculated valuation using NPV. 2) Should this npv (i.e. acquisition cost) + all other transactions costs be put on day 0, followed by the fcf line in the same line, to run the IRR formula from? 3) how is the discount treated in the irr formula? should i use...
Question about IRR
Let's say the target expects to generate negative cash flows of $2 million in the first two years (say negative $1 million cash flow for each year) before generating positive cash flows in the third year, so it requires $2 million capital injection to run the business. When you calculate the IRR,...
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...
Why do we still have NPV / IRR vs XNPV / XIRR?
The question that always lingered without anyone finding the solution: NPV does a limited function of XNPV IRR does a limited function of XIRR Why has Excel not got rid of NPV / IRR function? Are they useful for anything?
IRR Approximation for Multiple Years Sell Down
Hi Monkeys, I am struggling with the below question (to be done on paper) and thought I could lend some help with this community. My question specifically is how do you approximate a IRR with multiple period cashflows? How would you go about solving this? "A PE firm acquires a $150 EBITDA company...
RE IRR vs Pension fund payouts vs Stock market returns
Hello, senior Monkeys, I'm an outsider to the finance world working in CRE, my question how is stock market returns comparable to the RE IRR? when you say S&P 500 generated 6-7% you're talking about a Net cash return where your wealth actually Increased 6-7% but when you say 10-15% IRR in RE it just...
CAGR vs. IRR... # of periods...confused...
Hi team - hope everyone is doing well. for some reason i am a bit confused on the difference between cagr and IRR. the formula seems to be the exact same? for LBO purposes. (final value / beginning value)^(1/#periods) - 1 I'm also confused on the # of periods. For CAGR, 2012 - 2013 would be 1...
Calculating IRR of an Annuity Plus Single Amount Received
If an investment requiring a $20,000 initial investment is forecasted to produce income of $3,000/year for 5 years & will be sold at the end of Year 5 for $24,000, what is its projected IRR? The answer is 17.81% and I understand how to get that number. The second part of the answer states "The sale...
How do you calculate net IRR and gross IRR?
So I've seen the cash flows calculated for net IRR in two different ways in PE: Way 1: Annual cash flows = Capital called - fees + returns (or NAV) - carried interest (if exit period CF) Then an XIRR or IRR formula of said cash flows will give you the net IRR Way 2: Annual cash flows = Capital...
Real Estate Fund Modeling
What the best method for modeling a FOF hypothetical? A) utilize the the 1, 3, and 5 yr average net return of the underlying operators or B) utilize assumptions of cash flow based on prefs and estimated appreciation of the underlying assets? i've modeled both methods and with A (using net return)...
PE Fund tracking/accounting model
Does anyone have an example fund accounting/administration excel model that a PE CFO may use to track their portfolio? I realize that this is proprietary so may be hard to find, but was hoping someone had something even if it had dummy numbers in it. Basically, I want to know how professional PE...
Failed Investments
Monkeys, I feel like there's a lot of talk on this forum about recruiting for PE , hypothetical scenarios and technical questions. But one thing that isn't talked about enough is failed investments. For those who have been in private equity for a bit, not every deal isn't a home run for various...
IRR calculation
Hello all you cool cats and kittens, I am looking at the below IRR calculations which have 4 stream of cash flows - starting with 3 negative ones which are the same in both scenarios. The fourth positive stream is also identical as a number but there is a timing difference. End of Dec 2019 in...
IRR & Dividend Yield
Buy at 20x P/E, exit in 5 years at 30x P/E 5% dividend yield, assume 100% goes to equity holders What's your IRR?
Unlevered and levered IRR
If unlevered IRR is 10%, cost of debt is 2%, and tax is 25%, what’s the levered IRR given 60% leverage?
IRR
Hi, In practice LBO models I have noticed that sometimes, IRR is calculated based on MOIC (i.e. taking the MOIC^(1/hold period)-1) and sometimes using XIRR-formula (I of course know that XIRR is the only option when cash flows are irregular in terms of time period). Let's assume that the sponsor...
"IRR" for a total loss investment... 0% or -100%?
Hi All, Am having a semi interesting debate with a consultant pitching us a PE firm (we are a fund to funds). To make a long story short... there are 2 investments in the fund that are TOTAL losses ( 0 recovery).... yes I know terrible! However, the consultant is trying to convince me that the irr...
Carry interest and IRR
Dear all, Hello, i am glad to find here great sepcialists and discuss with them questions. Currently i' am writing dissertation about investment funds / innovations. I've noticed if IRR higher than hurdle rate, then return splits: 20% to management company and 80% to LP. But here are few questions:...
Interest-Only Mortgage = Lower IRR?
Hi All, Just wondering if you happen to have come across a property investment using interest-only mortgage, i.e. mortgage where you will pay only interest on a monthly basis, and lump sum of principal at the end of mortgage period. When comparing the investment using regular mortgage where you pay...
IRR Interpretation - Multiple Net Outflow Periods
Hi WSO , I'm computing the IRR on a project that is projected to have negative cash flows for about 3 years, and then cash flows are projected to be positive after that. If you run an IRR calculation in excel on those calculations, what exactly does that mean? It's easy for me to internalize the...
New Fund IRR calculation and prediction
In the real world, how do prospective PE firms model IRR projections? For the pitch deck, is it common to sensitize and demonstrate several possible outcomes, e.g. expected, over-, and underperforming? 2. If a fund invests in different asset classes and/or different geographies (each with its own...
How much of the overall waterfall does a sponsor/GP generally earn in a typical deal?
At the end of the day, on a typical opportunistic fund returning 16%IRRs to the LP, how much of the cash flows does the GP generally earn on the promote? Obviously there is the asset management fee, and could be other fees, but I just want to know what is a typical breakdown of how much the GP takes...
Calculating Investor Gross IRR where you have cash inflows before outflows
We have a new fund (1 year old) which uses a revolving line of credit to fund investment purchases. We used the line multiple times before we called capital from Investors for the first time. Investors received distributions before they ever contributed capital. Because of this, there is no initial...
IRR - NPV 0, why is this good? Confused
hey guys, would appreciate some of your insights on IRR . from what i understand, IRR is the discount rate at which the NPV of the project is 0. I understand PE firms like to see 20%+ IRR . I seem to be confused as to the point of calculating IRR if IRR just means the NPV is 0. Isn't that a bad...
IRR > WACC
Hey all, I have the following cash flows. CF0 = -100 CF1 = 40 CF2 = 30 CF3 = 80 I solved for IRR and I received 20%. Can I please add a bit of context to this question so I can further expand my knowledge? I want to assume that the $100 I borrowed is from a bank that charges me 10% Interest...
Valuation vs. Returns
Hi all Potentially rookie question but here goes... Imagine I have a company in which I want to make a $10m investment. Let's assume based on DCF that I value the company at $90m pre-money. Free cash flow for the company is as follows: Year 1: $10m Year 2: $30m Year 3: $50m Year 4: $80m (my exit...
Why IRR > WACC & not TWR > WACC
Hey all, Was solving some problems related to annualizing returns and I had the following scenario: I borrow $100 and invest it, and I get the following results: Year 1: 15% Return –> Ending CF: 115 Year 2: -10% Return –> Ending CF: 103.5 Year 3: 5% Return –> Ending CF: 108.7 Solving for the...
Why IRR is so high on a compressed timeline?
Hi everybody, I am currently underwriting a 13 units condo development project that has total length of 15 months from close to sale. 15% return hurdle and 70/30 promote slit. The problem is that the IRR comes out 38% with a 1.65x. If I would adjust the IRR lower, to 23%, multiple comes down to...
XIRR vs (1+IRR)^12-1
Any thoughts/preferences on using the XIRR function vs Effective Rate IRR when modeling development projects? Both account more time value - is one more accurate than another?
Contribution to IRR
Hi guys, I am wondering if someone could help with IRR contribution. For example, I have a stream of Cash flows that gives me an IRR of say 10%. If I then decompose those cash flows into different categories (say 3) I will get an IRR for every category and can´t to much with those. Now, if I want...
Multiple outflows in IRR calculation
What is the correct way to calculate the IRR if there are multiple cash outflows (at different times) which all happened before any inflows? For example, the cashflows may look like this: -600, -150, 0, -150, 0, 0, 18000 Is it as simple as solving r for 0 = -600 -150/(1+r) - 150/(1+r)^3 +...
Weird IRR pattern
Hi everybody. I work at a private equity firm and recently stumbled upon a weird IRR pattern . A simplified example looks the following way. Say, there are two sets of cash flows: (1) = -4 ; 2 ; 4 ; -3 ; -1; 6 ; -3 ; 8 (2) = -4 ; 2 ; 4 ; -4 ; -1; 6 ; 0 ; 8 The IRR of the first row is 34.7% vs 35.7%...
IRR on affordable high-rise condo deal ? ? ?
I am talking to a few hnwi in the next week about buying/recap. An entitled and permitted affordable condo highrise with 180 units. The stack has $35M in bank loan, $15M loan from the state, and $Xm for the land. Land is $7-8M. In place with very little new construction due to extreme construction,...
Calculating IRR of cash flows with terminal value
I have a project with an initial outlay (Year 0) and 10 years of forecasted positive FCFFs and FCFEs. After 10 years, I use a Gordon/Perpetuity Growth Model to determine Terminal Value. I built DCF model and discounted FCFFs with WACC (to arrive at Enterprise Value) and FCFEs with Cost of Equity (to...
IRR - 3 Year vs 5 Year Hold
As a Financial Analyst, I am frequently modeling commercial real estate deals. Typically, I will do a 3 Year and 5 Year analysis. Most of the time, the 3 year analysis will yield a higher IRR than the 5 Year analysis. However, in the current deal I am modeling, the 5 year analysis is yielding a...
Terminal Value for IRR Calculation - Restaurant Franchise
I am calculating IRR from a 10 years projected cash flow + a terminal value. The terminal value I understand is usually calculated as FCFF(1+g)/(r-g). Incase of using terminal value for IRR calcuation should the r= cost of capital or r=IRR (in this case it will be iterative as its being used to...
Terminal Value for IRR Calculation
I am calculating IRR from a 10 years projected cash flow + a terminal value. The terminal value I understand is usually calculated as FCFF(1+g)/(r-g). Incase of using terminal value for IRR calcuation should the r= cost of capital or r=IRR (in this case it will be iterative as its being used to...
Question about calculating IRR on a rolling basis
Say the investment horizon is 3 years. In year 1, you invest 4MM at 11c/share. In year 2, you invest 3MM at 20c/share. If the stock price by the end of year 2 A. falls to 10c/share or B. rises to 25c/share, what is your total return for your investment? Seems like a rather easy question but can't...
Public returns databases
Apologies - I'm sure this thread already exists but I couldn't find it anywhere. Does anyone know which large pension funds / institutional investors publish their PE portfolio returns. I think I've seen CALPERS and CALSTRS on their websites and was wondering if there is a list of other firms that...
IRR Attribution / Decomposition Analysis
Hi all, Has anyone actually done a full scale IRR decomposition like the detailed example (exhibits 2 and 3) presented in this McKinsey article? http://www.mckinsey.com/insights/corporate_financ… Would appreciate any excel examples and/or hear your thoughts.
IRR / cap rate help
Don't know much about CRE so any help would be much appreciated. I am presented with an opportunity to purchase a property for $10,000,000. This is my NOI: Year 0: -10,000,000 1: $579,799.80 2: $603,415.90 3: $627,864.92 4: $653,174.34 5: $10,679,372.51 What will your IRR be based on a five year...
5 Caps - What kind of returns can I expect
I have a question regarding what kind of returns I can expect from underwriting multi-family value add acquisitions at a 5 cap. I am typically in the neighborhood of low double-digits IRR , CoC mid-single digits. Some basic assumptions: 10 year hold stabilized vacancy(5%) entry cap = exit cap...
LBOs: Debt Repayment vs. Dividends?
Just wondering, when modelling LBOs is it market practice to assume you: a) amortise debt & forsake dividends over the holding period in favour of lower interest expense & a higher equity value at exit, or b) pay dividends & forsake debt repayment over the holding period in favour of a (slightly)...
Negative IRR
Let's say you have 2 scenarios: SCENARIO 1 Year 0 (initial investment): 150 Year 1 (end of investment): 140 Money Multiple: 0.93x IRR: (7%) SCENARIO 2 Year 0 (initial investment): 150 Year 1 (investment year): 0 Year 2 (end of investment): 140 Money Multiple: 0.93x IRR: (3%) Conceptually, I...
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