Management Assessment, Projected Cash Flow, and the First Way Out (Session #4)
Q: On slide 9, isn't the Interest expense double counted, as the Current maturities of LTD also has interest included?
A: The current maturities does not include interest expense. All interest expense associated with both short and long term debt is included in the interest expense amount of $59,062.
In commercial real estate lending, however, an annual debt service amount is used to determine if Net Operating Income is sufficient to service interest bearing debt. In this instance, the debt service amount - a constant amount - includes both interest expense and long-term debt repayment. Even though the debt service amount remains constant over the amortization period, the relative amounts of interest expense and long-term debt repayment within the constant amount change over time.
Q: If crevin increases his salary by $70,000, why doesn't the expense increase exactly 70,000 rather tha 68,xxx?
A: As an approximation of $70,000 we assumed a 2% in increase in SG&A %, which amounted to $68,862 - in the ballpark of $70,000. The Downside results would vary only marginally if we had used $70,000 rather than the 2% increase in SG&A%.