Determine if there is an opportunity for a carried interest.

Because you already know that the net present value of the project is positive, you know there is a possibility of carried interest. To determine if there is an opportunity for carried interest, you must determine if the project meets your equity investor’s hurdle rate by calculating the project’s internal rate of return (IRR). The IRR calculation is a simple computation in an Excel spreadsheet. Just type

[
], [irr] and then an open bracket [(]. After you type the open bracket, Excel displays: IRR(values,

[guess]). The word values is bolded, and all you have to do is highlight all of the cash flows, starting with $30,000,000 and going through $66,000,000; then type [)] and hit enter. You should now see 18.73% displayed in the box.

A B 1 Year Annual Cash Flow 2 0 -$30,000,000 3 1 $ 2,750,000 4 2 $ 3,500,000 5 3 $ 4,000,000 6 4 $ 4,500,000 7 5 $ 5,000,000 8 6 $ 5,500,000 9 7 $ 6,000,000 10 8 $ 6,000,000 11 9 $ 6,000,000 12 10 $ 66,000,000 13 WACC 8.925 14 NPV $25,497,620 15 NPV Calculation
B2NPV(B13, B3:B12)

16 IRR 18.73%

17 IRR Calculation
IRR(B2:B13)

Because the IRR for the project is 18.73%, it meets the investors hurdle rate of 15%.