This post is not a primer on the Net Present Value (NPV) or Internal Rate of Return (IRR), it also does not attempt to cover the science behind managerial decision making, capital budgeting and how to interpret the result of these metrics. This post aims to help you avoid the common errors we find in Project Finance financial models, due to the unexpected way both functions work. We compare the NPV result from using both Excel functions to our recommended approach, first principles and compliment it with IRR estimation and graphical double checks.

Project Finance lenders rely on the holy trinity of DSCR, LLCR and PLCR; however, developers and investors focus much more on the Project Return and Equity Return respectively. The Project Return allows Boards and Investment Committees the ability to compare one project to another, independent of gearing, cost of funds, impact on tax of deductible interest charges etc. This post introduces you to the Project Return, how to calculate it, how to present it and what to watch out for.

Range names are a powerful tool for referencing cell ranges in Excel and are an important technical aspect of our best practice financial modelling methodology - Alpha Spreadsheet Engineering. Range names, when combined with formula construction rules, enable longer, multi-layered, powerful formula which reduces the number of lines in a worksheet and maintains transparency. This post introduces the essentials of how we name ranges to enable more sophisticated, easier to read and powerful formulae.

By popular request this is how you generate a Table of Scenario results using both Data Tables and VBA. There are two versions of the Data Table example, a standard application and another controlled by VBA to build / dismantle the table to optimise model calculation. A separate approach uses Visual Basic to loop through the scenario generation with a ‘dummy’ macro which runs in-between each scenario being generated. Essential Project Finance Modelling. Download the free workbook to see how to do tackle all three approaches.

In this article we take the perspective of an equity investor in a project finance transaction needing to incorporate a terminal value in a financial model. In particular we cover the often overlooked and important difference between a Perpetuity and a Growth-Annuity as well as other common errors to avoid and watch out for.

This post is a primer on how to construct transparent formula, without oversimplifying the underlying logic and in doing so build more concise financial models which are readily checked, understood and communicated. The approach, part of the Alpha Spreadsheet Engineering methodology, relies on simple rules of Syntax, hierarchy and range names.