When you guys calculate interest expense, do you use a circ and calculate it based on average debt balance, or do you avoid the circ and just go off of beginning balance?
It seems like going off of beginning balance would be more conservative, but if you're paying down debt quickly then average balance might be more accurate. What's the "best practice"?
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From my experience, the average balance is used.
Average balance. That's why the model is circular.
~~~~~~~~~~~ CompBanker
What about for the times when you set the rate to a monthly one, from an annual rate? Do you just divide the annual rate by 12 or do you do something else? I've been taught to do the former but I think I saw a model where the monthly rate was in the formula: ((1+annual rate)^(1/12))-1.
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