Questions about Payment of Debt Servicing, Pref Returns, and Equity Balance pay down formula
So I have the following monthly formula in an underwriting model I have questions about;

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*NOI (net operating income)*

*- Debt Servicing cost*

*= Net Income*

*- Preferred Return Payment (=Preferred return % \* Beginning Equity Balance)*

*= Cash Flow available to reduce Beg. Equity Balance to get End. Equity Balance for the month*

This continues every month until the Equity Balance is paid off; after that the Cash Flows becomes Profit which is split according the the profit participation % among the involved parties.

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The model I am looking at this also has various inputs you can insert that are related to this; ('Company' refers to the company I am working for that is doing the deal.

1. Preferred Return % ; given here as 9%
2. 'Company' Equity Participation; given here as 5%
3. 'Company' Profit  Participation; given here as 25%

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Now my questions: how does it work in practice?

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* It is confusing to me that Preferred Equity %, 'Company' Equity Participation' and 'Company' Profit  Participation are all inputs the user inserts into the model. Isn't the  'Company' Profit  Participation related to the 'Company' Equity Participation? Ie, if you owned 5% equity wouldn't you only get 5% of the profits? How can profit participation differ from equity participation?

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* What is the preferred return %? I can see in the model it is used to calculate a payment based on a % of the Equity Balance. Who is getting the payment? The company I work for or someone else? Who decides the % rate?

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* What is 'Equity Balance' and what does its payoff represent?
   * My understanding of equity has always been that it represents 'ownership.' While in this model the Equity Balance is being paid off separately and after the monthly payment of debt servicing; it is being treated almost like a different type of debt that needs to be paid off, after the scheduled period loan repayment, but paid off in full before there is considered to be profit to be split and disbursed. Is the payoff of equity just tracking when the deal has turned a profit overall? Or where does that actual cash flow, that would be profit, go when it pays down the equity balance?
   * When a lending institution participates in the equity ownership; does that change anything? Or is this formula, that requires the equity balance has to be paid off for their to be a Profit, structured that way because of something related to the lender ownership of equity?

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* How does NOI being used for debt serving work when the institutional lender is participating in the equity portion of the deal?
   * Doesn't equity % ownership mean they have a right to a % of the Net Profit per period? Does that mean there is a limit to how much of the NOI can be used to service the debt based on the lender equity participation? Or is the equity split ignored until the NOI becomes a Net Profit line item which allows the entirety of the NOI to be used for debt servicing?

Thank you!

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[{"id": "ee36ru3", "text": "Are you trying to get this subreddit to do all of your work for you? ", "replies": [{"id": "ee3e1vc", "text": "If it was 'work' I could just do it myself.\n\nRather I'm asking how a certain kind of financing related to Equity affects things ***SO I CAN DO THE WORK.***\n\nAlso without detracting from what people who provide answers do for the rest of us; I often work harder asking the questions than the people do answering them; at least in terms of the length of the questions compared to lengths of the answers. I didn't write over a page of asking how something I need to understand for *work* works just *so I can avoid work.* That doesn't even make any sense. \n\n&amp;#x200B;", "replies": [], "depth": 2}, {"id": "ee3ec4v", "text": "Are you *trying* to be a total asshole?", "replies": [], "depth": 2}], "depth": 1}]