INTEREST
- FINANCE
The
cost of money. Interest is a measure of time because a developer will
lose interest on the cost of development proportional to the time
spent to develop. The measure is either the cost of money borrowed,
or opportunity cost if the developer uses his own money. Interest
erodes the value of future income, and benefits over time. Therefore,
the true value of a future cash flow is determined by discounting
those future amounts by an appropriate discount rate. Interest rate
should be quoted as an effective rate for comparison, and
feasibility purposes.
The
true cost of borrowed finance should be determined after deducting
any necessary cost to the borrower from the principal lent. For
example, legal, stamp duty, fees and charges. The easy way to account
for these is to determine the rate on the net borrowings, that is
after costs.
See:
nominal
interest rate
real
estate finance