Interest expenses

The manufacturing cost consists of direct, indirect, distribution, and fixed costs. Direct costs are raw materials, operating labor, production supervision, utihties, suppHes, repair, and maintenance. Typical indirect costs include payroll overhead, quaHty control, storage, royalties, and plant overhead, eg, safety, protection, personnel, services, yard, waste, environmental control, and other plant categories. However, environmental control costs are frequendy set up as a separate account and calculated direcdy. The principal distribution costs are packaging and shipping. Fixed costs, which are insensitive to production level, include depreciation, property taxes, rents, insurance, and, in some cases, interest expense. 

The investment consists of the fixed capital, eg, equipment, buildings, and faciUties land cost and working capital. Interest charges during constmction are frequently considered part of the fixed capital. This is called capitalization of the constmction interest expense. Part of the start-up costs are occasionally treated in the same manner. 

Interest Expense - Investment in equipment implies that one of two things must occur Either a company must pay for the project out of its own cash, or it must finance the cost by borrowing money from a bank, by issuing bonds, or by some other means. When a firm pays for a project out of its own cash reserves, the action is sometimes called an opportunity cost. If you must borrow the cash, there is an interest charge associated with using someone else s money. It is important to recognize that interest is a true expense and must be treated, like insurance expense. 

Interaction parameters for polymer blends, 20 322 in surfactant adsorption, 24 138 Interaortic balloon pump, 3 746 Intercalated disks, myocardium, 5 79 Intercalate hybrid materials, 13 546-548 Intercalation adducts, 13 536-537 Intercalation compounds, 12 777 Intercritical annealing, 23 298 Interdiffusion, 26 772 Interdigitated electrode capacitance transducer, 14 155 Interesterification, 10 811—813, 831 Interest expense, 9 539 Interface chemistry, in foams, 12 3—19 Interface metallurgy materials, 17 834 Interfaces defined, 24 71... 

Significant likelihood of financial distress (CF does not cover interest expenses)... 

This is the ratio of income from ongoing operations plus interest expense to the average total sales. Therefore, it is a measure of the firm s abilify to effectively use ifs assefs to earn a profit. 

The ratio compares the incomes from continuing operations before income taxes plus the interest expense to the interest expense and measures the number of times that a firm s net income can cover its required interest payments. The formula for this ratio is as follows ... 

Temporary revenue and expense accounts are used to classify changes affecting stockholders equity. Expense accounts covering legal expense (LP 40), depreciation expense (LP 41), and interest expense (LP 42) were created. A revenue account was not needed in January because there was no income. These ac-... 

Interest expense To close the expense and revenue accounts 42 20... 

Times interest earned = operating income/interest expense... 

Financial risk is in some cases defined as the additional variability in earnings. .. and the additional chance of insolvency. .. caused by the use of financial leverage (Keown etal., 2002). In turn, the financial leverage is the amount of assets of the firm being financed by securities bearing a fixed or limited rate of return. Thus, the degree of financial leverage (DFL) is defined as the ratio of EBIT to the difference of EBIT and the total interest expense I, that is. 

Constant Dollar Analysis In the original problem statement, aU cash flows were presented in constant dollars. Thus, revenues, operating and maintenance expenses, and capital costs are straightforward. However, the loan principal and interest expenses tne actual doUar cash flows, which means they include the effects of inflation. Thus, these cash flows must be deflated with the inflation rate of 5%. These calculated cash flows, along with the other constant cash flows, are provided in Table 3. 

Actual Dollar Analysis (2) Because it is more realistic to assume inflation rates that vary for each cash flow component, we revisit the actual doUar analysis. Assume that the revenues grow at a rate of 5% per period, O M expenses increase at a rate of 3% and the salvage value grows at a rate of 8% per period. The revised actual dollar cash flows for this example are given in Table 4. As before, interest expenses, the initial purchase cost, and the loan principal payments are unaffected. 

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