Consider a project with setup cost of $ 1,000,000 that has achieved completion on 30 September 2021 which yields annua

1. Compute the Internal Rate of Return (IRR) of the same.

2. What should be the Buyout price at end of 10th Year if the IRR for the Investor ought to be 20%

       (C) How does the IRR computation in (a) change in case there is return holiday during the first three years i.e. Sep 2022

Intial investment -1,000,000

Yeild 12%
Terminal Value 2,000,000
Years 0yr 1st 2nd 3rd
-1,000,000 120,000 120,000 120,000
IRR 17%

Change in IRR
Intial investment -1,000,000
Yeild 12%
Terminal Value 2,720,000
Years 0yr 1st 2nd 3rd
-1,000,000 - - -
IRR 15%

 Meridian Infrastructure Corporation has its Project Cost estimated at Rs 1000 Crores to be incurred over a two-year period

Until 30 Sep 2021 - Rs 100 Crores

Until 31 Mar 2022 - Rs 300 Crores
Until 30 Sep 2022 - Rs 700 Crores
Until 31 Mar 2023 - Rs 1000 Crores

During the first year of operation thereafter (1st April 2023 until 31st March 2024), the EBITDA is expected to Rs 200 Cr wi
 mber 2021 which yields annual rental income of $ 120,000 (12%) for the next 10 years and also enjoys and assured buyout at $ 2,000,

he first three years i.e. Sep 2022,23 & 24 and return is available for balance 7 years along with assured buyout at $ 2,360,000 at the end

4th 5th 6th 7th 8th 9th 10th

120,000 120,000 120,000 120,000 120,000 120,000 2,120,000

4th 5th 6th 7th 8th 9th 10th

120,000 120,000 120,000 120,000 120,000 120,000 2,720,000

incurred over a two-year period for project setup completion by 31st March 2023, cumulative investment levels (including IDC) as belo

DA is expected to Rs 200 Cr with annual increase thereafter at 3% per annum on year-on-year basis. At the end of 10 years of operatio
ys and assured buyout at $ 2,000,000 at the end of 10th Year.   

d buyout at $ 2,360,000 at the end of 10th Year (along with foregone interest of first 3 years)

ment levels (including IDC) as below

At the end of 10 years of operations the Project is expected to be taken over at a lumpsum Buyout price of Rs 300 Crores.   Compute t
Rs 300 Crores.   Compute the Project IRR in the case
Q 18 1 2
Cost of Project 2100 2100
Debt 700 800
Equity 1400 1300
Interest 12% 12%
Year-0 Year-1 Year-2 Year-3 Year-4 Year-5
Principle Outstanding 700 700 630 560 490 420
Interest Paid - 84 75.6 67.2 58.8 50.4
Principle Repaid - 70 70 70 70 70
Installment - 154 145.6 137.2 128.8 120.4
DSCR - 1.299 1.415 1.547 1.697 1.870

Year-0 Year-1 Year-2 Year-3 Year-4 Year-5

Principle Outstanding 800 800 750 700 650 600
Interest Paid - 96 90 84 78 72
Principle Repaid - 50 50 50 50 50
Installment - 146 140 134 128 122
DSCR - 1.37 1.47 1.58 1.71 1.85

Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8

200.00 206.00 212.18 218.55 225.10 231.85 238.81 245.97
Year-6 Year-7 Year-8 Year-9 Year-10
350 280 210 140 70
42 33.6 25.2 16.8 8.4
70 70 70 70 70
112 103.6 95.2 86.8 78.4
2.070 2.305 2.584 2.919 3.329

Year-6 Year-7 Year-8 Year-9 Year-10

550 500 450 400 350
66 60 54 48 42
50 50 50 50 350
116 110 104 98 392
2.00 2.17 2.37 2.59 0.67

Year-9 Year-10
253.35 260.95
Current Status

Annual Revune 100

Annual Expt 150

Revenue Growth 25%

Expt Growth 5%

year Revenue Expt Profit year

2021 100.00 150.00 -50.00 2021
2022 125.00 157.50 -32.50 2022
2023 156.25 165.38 -9.13 2023
2024 195.31 173.64 21.67 2024
2025 244.14 182.33 61.81 2025
2026 305.18 191.44 113.73 2026
2027 381.47 201.01 180.46 2027
2028 476.84 211.07 265.77 2028
2029 596.05 221.62 374.43 2029
2030 745.06 232.70 512.36 2030
2031 931.32 244.33 686.99 2031
2032 1164.15 256.55 907.60 2032
2033 1455.19 269.38 1185.81 2033
2034 1818.99 282.85 1536.14 2034
2035 2273.74 296.99 1976.75 2035
2036 2842.17 311.84 2530.33 2036
2037 3552.71 327.43 3225.28 2037
2038 4440.89 343.80 4097.09 2038
2039 5551.12 360.99 5190.12 2039
2040 6938.89 379.04 6559.85 2040
2041 8673.62 397.99 8275.62 2041
Scenerio
Revenue Growth 10% (Input rate between 10% - 50%)
Expt Growth 2% (Input rate between 2% - 20%)

Revenue Expt Profit

100.00 150.00 -50.00
110.00 153.00 -43.00
121.00 156.06 -35.06
133.10 159.18 -26.08
146.41 162.36 -15.95
161.05 165.61 -4.56 It breaks even in 5 years , even after assuming the least
growth rates, Revuenue - 10% and Expt - 2%
177.16 168.92 8.23
194.87 172.30 22.57
214.36 175.75 38.61
235.79 179.26 56.53
259.37 182.85 76.53
285.31 186.51 98.81
313.84 190.24 123.61
345.23 194.04 151.19
379.75 197.92 181.83
417.72 201.88 215.84
459.50 205.92 253.58
505.45 210.04 295.41
555.99 214.24 341.75
611.59 218.52 393.07
672.75 222.89 449.86
 after assuming the least
and Expt - 2%