We begin the debt schedule by entering our interest rate assumptions. We first enter the LIBOR curve (obtained from Bloomberg, perhaps), since some types of debt in the capital structure have variable interest rates calculated as a spread over LIBOR. Alternatively, variable interest on some forms of debt might be calculated as a spread over the 10-year Treasury. As you can see from the spreadsheet below, some of the debt we consider here have variable interest rates, while other debt instruments carry fixed rates. Calculation of variable rates is easy–simply add the spread of the LIBOR rate for each projected year.

Note that we have also included a line for the revolver’s undrawn commitment fee. While the company pays interest at some variable rate (e.g. LIBOR + spread) to the extent it has “drawn down” the revolver (i.e. has a revolver balance, much like a credit card balance), it pays a fixed rate on any undrawn revolver balance. For example, if a company has drawn down $1mm of a $5mm revolver, it will pay an undrawn commitment fee on the $4mm unused portion. This fee is necessary to compensate the company’s bank for committing to make funds in the revolver available to the company. While we have left space for this fee, we cannot calculate the dollar amount because we do not yet have information on the revolver balance in each projected year. We will compute this fee in a subsequent step.

Once we have made our interest rate assumptions, we return to the top of our model and enter a summary of these assumptions into the Sources & Uses section created in the last step (scroll up to see this). In this section, we also added an input cell named “avg_int”, which will tell our model to compute interest-based on average debt balances (i.e. the average of beginning and ending debt balances for each year) or year-end balances.