1. FOUR POSSIBLE
APPROACHES
This Section presents four possible
approaches to estimate the interest
expenses when forecasting financial
statements: The first is the use of
the capitalized interest rate; the
second one is to average debt to
calculate interest payments with
the contractual cost of debt, Kd; the
third procedure uses the sum of the
actual interest payments in the year
when the interest is liquidated in
shorter periods than the one used to
forecast; and finally, the last one uses
of contractual cost of debt Kd and the
end of year assumption where the
interest charges are calculated with
Kd and the initial debt balance. It is
possible to find other versions that
combine some of the four approaches
described herein.
1.1. Use of capitalized interest
rate
There is no firm that pays the capitalized
interest rate. There is no bank
that calculates the interest payments
based on the capitalized interest
rate. This is very important either
for forecasting financial statement or
discounting cash flows using the well