The city of

1. Assume the city capitalizes $60,000 of the interest. What is the payback period and the pattern of debt coverage for this project?

- Suppose the project will generate only $50,000 of revenue each year. Can you develop a feasible schedule of debt repayment for the project, assuming $60,000 capitalized interest?

3. Using the original assumptions, compare the effect of $30,000 capitalized interest and $60,000 capitalized interest on the feasibility of the project.

4. Suppose the city's bond rating is upgraded to A. At this rating, bonds start at 7.0%, and increase in the following pattern: 7.0%, 7.2%, 7.4%, 7.75%, 7.9%, etc. What difference does this make in the feasibility of the project?

5. Suppose interest rates jump by 1%. What is the effect on project feasibility? What schedule of debt repayment would be necessary to make the project work?

© 1996 A.J.Filipovitch

Revised 11 March 2005