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Impact of Govt. Grant on key Financial Ratios

Impact of Govt. Grant on key Financial Ratios

Dear All,

 My question is whether receiving a Government Grant has an affect on the following financial ratios;

1. Project IRR

2. Project ROE

3. Project ROI

4. Payback period

Based on my calculation of the two scenarios (With Grant and Without Grant) the ratio will be as follows;

  With Grant Without Grant
Project IRR 11.7% 11.7%
Equity IRR 13.2% 13.2%
Project ROI 4.3% 3.0%
Project ROE 6.1% 4.3%
Payback Period 8 years and 5 months 8 years and 5 months
The Grant will affect the Project ROI and ROE only.

The details of the two scenarios are below. For some reason when I post my calculation it doesn't appear properly in the page.

Assumptions  
Construction Cost 80,000,000
Profit before Interest & Tax 6,000,000
Depreciation (years) 10
Government Grant (amortised over 10yrs) 10,000,000
Equity Contribution 70%
Debt Contribution 30%
Cost of Equity  14%
Cost of Debt 8%
Wt. Average Cost of Capital 12.2%
Financing Cash flow  
Loan Drawdown  24,000,000
Equity Contribution  56,000,000

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22nd Feb 2016 05:47

Haven't you answered your own question?

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