Hi, do anyone know how to forecast interest cash flow if the company is using floating rate? I want to forecast for 10 years. First i think to use regression to predict the interest rate-and its definitely not accurate if you just regress it upwards
2nd just assume it to be fixed and do sensitivities on NPV later on.
3rd Make it fixed and increase the cost of debt-i think is not right.

Can anybody here give suggestion to this problem, coz i need an accuracy when forecast interest cash flow, so that my IRR would be more accurate for project financing

Question

Hi, do anyone know how to forecast interest cash flow if the company is using floating rate? I want to forecast for 10 years. First i think to use regression to predict the interest rate-and its definitely not accurate if you just regress it upwards
2nd just assume it to be fixed and do sensitivities on NPV later on.
3rd Make it fixed and increase the cost of debt-i think is not right.

Can anybody here give suggestion to this problem, coz i need an accuracy when forecast interest cash flow, so that my IRR would be more accurate for project financing

anonymous · Answer

Gecodine, to forecast interest rates you need to know how the floating rate is been calculated, normally mean reversion models are used to forecast this variations, there is a lot of information on the web.
Also you can assume fixed interest rate and do some sensitivities to see if your interest rate is a primary variable for the valuation you are doing, and if it worth to do mean reversion model for that variable.