Introduction
This tutorial shows how in when modeling a project finance project the maximum debt limit can be solved based on a target Debt Service Cover Ratio (DSCR). This exercise indicates the maximum debt size that can be supported by a certain Cashflow Available for Debt Service (CFADS) profile. To set up the financial model, principal repayments need to be set to a target DSCR like in Screenshot 1 which is also found in the attached model. This layout for calculating principal is also discussed in detail in a previous tutorial - Debt Sculpting to Achieve Target DSCR without VBA. This earlier tutorial we sculpted the principal repayments in every period to achieve a uniform DSCR of 1.50x, where as in this tutorial we will use the CFADS to solve for a maximum debt limit. Screenshot 1: Setting up Principal Repayment Goal Seek is an in-built function in Excel and is used when you know the desired result of a single formula but not the input value the formula needs to achieve the result.
However, the limitations are Does not work with two or more input values Only provides one solution, even for formulas which have multiple solutions Only works if the Set Cell value converges towards the To Value in each iteration The Set Cell and By Changing Cell values have to be on the same sheet
In this tutorial, we will cover the following Why and when would we use this method? What are the benefits and limitations of Goal Seek? Incorporating the sequence as a VBA macro.
Screenshot 2: Manually inserting Debt Limit in Inputs Sheet Lets say we start with a limit of $500m, the CFADS is not enough to repay the loan, thus there is still a Balance C/f @ Maturity (cell 18) of $178m. We will need to manually key in a lower limit until cell F18 is zero.
Debt Limit
Screenshot 3: Goal Seek Window Set Value = Closing Debt Balance @ Maturity To Value = 0 By Change Cell = Debt Amount
Replace all cell references in the code with the new name ranges.
To label and assign a macro to the button Right click on the object Edit Text Right click on the object Assign Macro Select the relevant macro Hit OK
Clicking on the button now will run the goal seek macro that we have recorded in Step 2.
In a project finance project it is useful to know the maximum debt limit that can be supported by a DSCR to estimate the potential size of the debt funding that can be reasonably supported by the cashflows of a project. In this tutorial we have shown you by using VBA how to calculate the size of the maximum debt limit based on a target DSCR that is static. There is another useful article on on Fimodo about a similar topic.
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