Principles of Project Finance

18.8%; however, the improvement in MIRR (a fairer reflection of the picture) is

more limited, from 14.6% to 14.9%. The payback period reduces significantly, to

within 4

1

⁄2 years.

The repayment structure is relatively more important to the investors than the

interest rate on the debt. If, in this example, the lenders offered to reduce their in-

terest rate by 0.25% in return for a level principal payment structure instead of an

annuity repayment, the IRR benefit of this to the investors would be 0.6%, whereas

the annuity repayment structure is worth an extra 2.2%. Similarly, it is likely to be

worth paying a higher rate of interest to obtain longer term ...