From the course: Financial Modeling Foundations

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Waterfalls and models

Waterfalls and models

From the course: Financial Modeling Foundations

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Waterfalls and models

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- [Instructor] Complex financial models are often used to help us to understand where cash is flowing, particularly when it flows to a variety of different investors at various levels based on the capital they've committed. This is what we refer to as a cash flow waterfall. Here's an illustration of a cash flow waterfall. Essentially, we might start out with capital coming in and we can think about that as water pouring into a bucket. Then from there, some of that cash flow is paid out for project operation and maintenance, right? Operating the firm. Remaining cash flow after project operation and maintenance are taken care of, goes towards senior debt service. Then after senior debt services covered, remaining cash flow goes towards senior debt service reserves. Then after those reserves are covered, additional cash flow flows through in returns to the project sponsor that is the investors. We need a model that helps…

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