Equity IRR from the debt structure
Enter the cash flow before debt and the loan terms to compare Project IRR with Equity IRR
Read with Real Estate Project Strategic Financial Management Handbook: A Practical Guide · Part 3
The figures entered are hypothetical examples. Every cell can be edited. Units are THB million.
Project IRR vs Equity IRR
Recalculated every time a figure is changed
- Loan facility / LTC–
- Peak debt balance–
- Total interest and fees–
- Project NPV–
- Equity NPV–
- Debt-free from period–
- Shareholders put in cash
- Shareholders receive cash
- Outstanding debt
- Cumulative project balance (before debt)
- Cumulative equity balance
Table of cash flow, debt and equity by period
THB million · negative values shown in red
| Period | Project before debt | Debt | Equity | Event | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| # | Period | Net | Cumulative | Drawdown | Interest paid | Capitalised interest | Principal repaid | Closing debt balance | Net | Cumulative | |
Row underlines: the point of maximum cumulative equity invested by shareholders (Peak Equity); the period in which cumulative equity turns positive
Annual summary
Monthly periods grouped by calendar year
| Year | Number of months | Project before debt | Drawdowns | Interest and fees | Principal repaid | Year-end debt balance | Net equity | Cumulative equity |
|---|
Equity IRR sensitivity
Change the debt proportion and the interest rate together
The gold-bordered cell is the base case. Red cells are where Equity IRR is below Project IRR (negative leverage). The LTC 0% column shows Project IRR. The last row shows Peak Equity at the base-case interest rate.
Results are calculations for learning purposes only. The figures entered are hypothetical examples, not real project data, and are not investment advice.
How to use
- Choose annual or monthly frequency, then enter the project discount rate and the return required by shareholders.
- Enter the project's cash flow before financing (outflows and inflows) starting from period 0, or paste data from Excel. You can use the same data set as in the Project IRR and NPV tool.
- Enter the loan terms, then compare Project IRR with Equity IRR. If Equity IRR is higher, debt is boosting the return on equity (positive leverage). If it is lower, the cost of debt exceeds the project return (negative leverage).
- Always read Peak Equity alongside Equity IRR. More debt can raise IRR, but it also increases risk and the interest burden. The sensitivity table shows how well the return withstands higher interest rates.
Assumptions and limitations
- Cash flows are treated as a single lump sum at the end of each period. Loans are drawn in the same period as the payment. Interest is calculated on the opening debt balance.
- Equity First: shareholders pay first until the total investment less the loan facility is covered, then the loan is drawn. Pro Rata: in every negative period, the loan is drawn in proportion to LTC.
- Surplus cash after interest repays principal according to the cash sweep percentage, and the remainder is repaid in full in the final period. If project cash is not enough to pay interest, shareholders cover the shortfall.
- You can choose to capitalise interest into principal, so the debt balance may exceed the loan facility. The loan fee is calculated on the facility and paid by shareholders in the first drawdown period.
- For monthly periods, annual IRR = (1 + monthly IRR)12 − 1. If there are multiple IRR values, this page shows the one closest to the comparison rate and displays a warning.
- Excludes covenants, drawdown conditions tied to construction progress, tax on interest and multi-layered debt (mezzanine).