Parallel Model Case Examples

The parallel concept works by adding a page to your model and then copying a template spreadsheet as well as the UDF code.  With the new page, you connect a few input variables like EBITDA, depreciation, interest rates and DSRA inputs as well as the model timeline. I want to show you that it is not very difficult to implement the model.  I also want to show you that the parallel model can handle the vast majority of issues that you may deal with in your model. With the parallel model you can do all sorts of things you cannot do with other methods of solving circular model problems.  But that is not all. You can also verify your model.  There is still more. You can add features that you may not have imagined in your model.

In the pages attached to this page, I illustrate how the model works.  I use three base models.  One model is pretty simple with annual flows and without balloon structures, alternative DSRA options, multiple debt issues or equity bridge loans.  With this example I demonstrate how the parallel model works and you can include different debt sizing options, debt repayment options, mezzanine debt, re-financing and changing interest rates.

The second model illustrates how the model works with multiple debt issues.

 

The cold hard fact is that excel is not a very good tool for project finance modelling.  This is because of natural circular references that occur in project finance structuring.  For example, Interest During Construction (IDC) depends on debt which can depend on project cost.  But IDC is a component of project cost.  This is a classic circular reference.

The copy and paste and the iteration button fail miserably in solving circular references.  Excel loses its ability to perform sensitivity analysis, target contract bids, and quickly demonstrate the effects of alternative structuring parameters.

The good news is that you can fix the circular reference with a user defined function (UDF).

The better news is the UDF can be used as a sophisticated method to audit many of the equations in your model.