Wednesday, July 21, 2010

Do you credit interest on an increasing cash balance in dcf calculation?

I'm modelling a business which generates cash, in my cash flow model that cash builds up. Conceptually would I credit the company with annual interest (ie 5% on credit balance). If so, in the latter years of the project, where a large cash balance has built up, you get some seriously high interest payments.

Do you credit interest on an increasing cash balance in dcf calculation?
Yes thats true. Good observation.


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