Update to Preferred Return Template - Return of Equity Option Added

 There is this tricky term called 'repayment of equity' in joint venture financial modeling. It is important because the total preferred return due will change depending on how the agreement works for equity basis reductions from profits when there is an LP with a preferred return.

Updated Template:

Explanation of Update


This model already did a lot of great things like giving the option to accrue unpaid returns or not and the option to compound unpaid returns onto the equity basis or not and even the option to start fresh each period without tracking unpaid returns.

But now you get a new feature. It is the option (yes/no selector) to have any cash distributions above the preferred return be counted as 'repayment of equity' and in that case the basis for the preferred return due is lowered going forward from each reduction in basis.

Note, the model does distinguish what is return of equity vs. repayment of shortfalls. Depending on if the shortfall is being compounded (another yes/no selector option) both of those things can effect the total return due.

The general inputs of the template work like this:
  1. Enter project level cash out and cash in for period 0 through 10.
  2. Enter the percentage of the cash out that is paid by the LP / Investor and the percentage paid by the GP / Sponsor
  3. Enter the preferred rate of return (percentage)
  4. Enter the percentage of profit split after the preferred return has been fulfilled (this is what may possibly be used to return equity and reduce basis per the latest update)
  5. Select yes/no for the following:
    1. Add Shortfall to Investor Equity?
    2. Start Clean Each Year?
    3. Reduce Equity Balance with Profit Share?

Article found in Joint Venture.