Project finance — CFADS, DSCR & IRR
Model an AI data center as a project financing: a construction period with capitalized IDC, a revenue ramp, cash taxes net of the depreciation and interest shields, and sustaining capex → CFADS, the lender's true DSCR (CFADS ÷ debt service), separate project and equity IRR, NPV, and equity multiple. Pathological inputs are rejected, not coerced.
Project finance — CFADS, DSCR, IRR
This is the guide's default project, and on these inputs it loses money. One NVIDIA GB300 NVL72 rack ($8.5M with its share of the building) is rented on a 3-year take-or-pay contract at $5/GPU-hour, then re-let at the market rate, which the default assumes falls 15% a year. Debt coverage is 1.55× or better while the contract runs, then falls below the 1.35× covenant in year 4, after renewal. That is the result of the sourced default inputs, not an error. To see what makes the deal work, try a longer contract (hyperscaler anchor contracts run about 5 years), a higher rate or a lower server price → Ch 1.8.
Fails your debt covenant. The fleet earns for 5 years over a 5-year hold.
The model keeps the original fleet for the whole hold. Revenue is flat for the take-or-pay contract term; at renewal the fleet re-lets at the rate the revenue-growth trend has reached since the stabilized year. Sustaining spend is a cash cost and buys no replacement fleet; tax life only sets deductions. A refresh needs a separately funded second fleet. Exit proceeds are your exit multiple times final-year EBITDA, with remaining debt repaid at exit. Taxes use illustrative straight-line depreciation, an interest shield and a zero floor, with no NOL carryforwards or working-capital model. DSCR = CFADS ÷ scheduled interest and principal during ownership; exit debt payoff is shown separately. Loan covenants use their contract definitions. One entered rate discounts both project and equity cash flows. IDC uses a simple average-balance estimate allocated evenly across construction years → Ch 2.5, Ch 1.8.
Annual cash-flow bridge
| Line | close 0 | build 1 | ops 2 | ops 3 | ops 4 | ops 5 | ops 6 |
|---|---|---|---|---|---|---|---|
| Capital expenditure | 0 | 8.504 | — | — | — | — | — |
| Debt drawn for capex | 0 | 5.102 | — | — | — | — | — |
| IDC capitalized (average-balance allocation) | 0 | 0.179 | — | — | — | — | — |
| Equity funding | 0 | 3.402 | — | — | — | — | — |
| Reserve funding | 0.644 | 0 | — | — | — | — | — |
| Revenue | — | — | 3.154 | 3.154 | 3.154 | 1.937 | 1.646 |
| Operating cost | — | — | 0.788 | 0.788 | 0.788 | 0.484 | 0.412 |
| EBITDA | — | — | 2.365 | 2.365 | 2.365 | 1.453 | 1.235 |
| Tax depreciation | — | — | 0.85 | 0.85 | 0.85 | 0.85 | 0.85 |
| Levered cash tax | — | — | 0.24 | 0.254 | 0.268 | 0.092 | 0.063 |
| Unlevered cash tax | — | — | 0.318 | 0.318 | 0.318 | 0.126 | 0.081 |
| Sustaining capital expenditure | — | — | 0.095 | 0.095 | 0.095 | 0.058 | 0.049 |
| Cash available for debt service | — | — | 2.03 | 2.017 | 2.002 | 1.302 | 1.122 |
| Interest | — | — | 0.37 | 0.305 | 0.237 | 0.163 | 0.084 |
| Principal | — | — | 0.918 | 0.983 | 1.051 | 1.125 | 1.204 |
| Debt service | — | — | 1.288 | 1.288 | 1.288 | 1.288 | 1.288 |
| Debt before exit payoff | 0 | 5.281 | 4.363 | 3.38 | 2.329 | 1.204 | 0 |
| DSCR (ratio) | — | — | 1.576 | 1.566 | 1.554 | 1.011 | 0.871 |
| Operating equity cash flow | — | — | 0.742 | 0.729 | 0.714 | 0.014 | −0.166 |
| Enterprise exit proceeds | — | — | 0 | 0 | 0 | 0 | 0 |
| Exit debt payoff | — | — | 0 | 0 | 0 | 0 | 0 |
| Reserve released | — | — | 0 | 0 | 0 | 0 | 0.644 |
| Project cash flow | 0 | −8.504 | 1.952 | 1.952 | 1.952 | 1.268 | 1.105 |
| Equity cash flow | −0.644 | −3.402 | 0.742 | 0.729 | 0.714 | 0.014 | 0.478 |
Worked decision — stated assumptions
All ledger inputs are assumed teaching values chosen to exercise this chapter’s method; they are not market quotes, OEM performance claims or operating records. Arithmetic uses the full entered precision.
| Input | Value |
|---|---|
| Total capex | 100 $M |
| Construction period | 0 yr |
| Debt / leverage | 50 % |
| Interest rate | 0 % |
| Debt term | 4 yr |
| Revenue (stabilized) | 40 $M/yr |
| Ramp to stabilized | 0 yr |
| Opex | 25 % of rev |
| Cash tax rate | 20 % |
| Tax depreciation life | 3.5 yr |
| Sustaining capex | 0 % of rev |
| Revenue growth | 0 %/yr |
| Hold period | 4 yr |
| Exit multiple | 0 × EBITDA |
| NPV discount rate / equity hurdle | 10 % |
| DSRA | 0 mo |
| Grace period | 0 yr |
| Fleet earning period | 4 yr |
| Lender's minimum DSCR | 1.5 × |
Illustrative retained-fleet case, all amounts in $M: assume capex 100, immediate operation, debt 50 at zero interest amortized over four years, revenue 40/year, opex 25% of revenue, cash tax 20%, tax depreciation over 3.5 years, no sustaining spend, no growth, four-year hold, zero exit proceeds and no reserve. Assume the original fleet supports all four earning years. These tax and earning periods are independent assumptions.
Closing equity is 50. Annual EBITDA is 30. Tax depreciation is 28.5714 in years 1–3 and 14.2857 in year 4, totaling 100. Cash tax is 0.2857 in years 1–3 and 3.1429 in year 4. Annual principal is 12.5; minimum DSCR is 26.8571 / 12.5 = about 2.15. Equity cash flow is 17.2143 in years 1–3 and 14.3571 in year 4. At a 10% hurdle, equity NPV is −50 + Σ[17.2143 / 1.1ᵗ, t=1…3] + 14.3571 / 1.1⁴ = about 2.62.
The case passes the assumed 1.50 covenant and positive-NPV hurdle. A covenant of 2.20 fails. Without an earning period the return is not decided; a tax depreciation schedule does not supply that evidence. The bridge shows the complete annual lines, including zero terminal proceeds.
Primary method: Microsoft NPV — end-of-period cash flows and initial investment. Method and handoff: Chapter 2.5 — Project Finance & Capital Formation (Mechanics).
These are transparent screening estimates, not final designs, financial advice, or project approvals. Replace every default with current project data and have the responsible project authorities validate the result. You can save, share a permalink, or export to CSV; see the full calculator suite.