We are now going to do an example of building up an equity drawdown, a debt drawdown, interest during construction and debt repayments. We'll do this as a simplified example in the file that's called interest during construction work out empty.

If you open that up on the workout sheet, you'll see that we have in that sheet three years of capital expenditure.

We have total equity commitment of 1,200 and any debt that we draw will have an interest rate of 5%. We start operations during the third year, a grace period of two years. So in total that adds up to five. Our repayments start in the fifth year and then we will have five years from that point on to make our repayments. So at the end of the fifth installment, the debt should be fully repaid.

Let's start by looking at the equity unused at the start of the year. We know that the shareholders have said they will put in up to 1200.

How much have they put in? So far, nothing.

I can tell that because if I look at the equity at the end of the previous year, there was nothing drawn. So we've got the full 1200 available to us at the beginning of year one. Equity at the start of the year is always equal to what it was at the end of the previous year. Let's have a look at equity drawn.

What we want is enough to pay 1,000 worth of expenditure. The shareholders said they would put in up to 1,200.

All we need is the lower of the two numbers. So it's the minimum of the 1,200 the shareholders said they'd put in, and the 1,000 that we actually need to spend the lower of those two numbers, 1,000. That's how much the shareholders will put in this year.

So by the end of the year, we will have 1,000 worth of equity.

Now, what happens to our equity at the start of the year? Again, we know that the shareholders have said they will put in 1,200. How much have they put in so far? Well, at the end of last year we had 1,000 worth of equity. So they could put in another 200, but no more than that because then they'd reached the limit. So let's use the same formula again. So lower of 1,500 or 200. Obviously the lower number there is 200. Let's add those two together. 1,200 worth of equity. If we copy all of these across, we'll see that in year 3, 4, 5, and so on. There is no unused equity. We have used all 1,200 that the shareholders said they put in. We reach the limit of 1,200 and the equity stays at that level till the end of the model. Now let's have a look at the debt. Debt at the start of year one is zero. How much are we going to draw down? Well, we know we need to spend 1,000 in year one. The shareholders put in 1,000, so we don't need to draw any debt at all.

Let's add those two together.

I'll skip over the interest during construction. IDC, we'll come back to that. I'll do the subtotals. And at the start of year two, we have no debt. What happens during year two? We need to spend 1,500. How much are the shareholders putting in? They're only putting in 200. So the other 1,300, we're gonna have to find another form of finance. We're going to have to use some debt. I'll copy across these subtotals. So we can see by the end of year two we have 1,300 of debt, which is where we start year three.

Do the same thing. In year three, we need to spend 500. How much will the shareholders put in? Nothing, because they will already reach the limit of how much more they can put in. Stop at 1,200 and they don't put any more in after that. So all of this 500 is gonna have to be funded with debt. And you can see that the debt has now risen from 1,300. At the beginning of year three, we add another 500 as a drawdown and now we have total debt of 1,800. No further debt gets drawn down because we have finished our capital program and we've spent all the CapEx we need by the end of.