Interest During Construction (IDC) - circular formula

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cfaprincess

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Dear All,
Need your advice on how to solve this problem. I am modeling Interest During Construction (IDC) but this is creating circular formulas due to:
- IDC contributes towards Total Project Cost (and hence, Total Debt)
- but… IDC is a function of Total Debt
I’ve asked around and so far people have either told me to “hardcode” the Total Project Cost and live with the slowness of Excel iterations due to resolution of circular formula.
Is there a better way around this problem??
 
It can’t be solved using an algebraic function…
The construction facility is drawn down over the construction period (lets say 36 months)…and the amount of each drawdown is not constant…
so the debt balance goes up in a non-linear fashion…
It isn’t possible to derive the debt facility limit without cirulcarity in the formula..
In case you want to avoid the circularity, hard code the total equity contribution and then goal seek the number to come to your desired gearing level.
 
hey cfaprincess, how are things? hope the last few weeks went well…did you get my email from a while back (around cfa exam time, i think)?
 
I’m a commercial construction lender. Assume that your constrcution line will be on average 50% drawn over the course of a 12-month construction period.
 
numi Wrote:
——————————————————-
> hey cfaprincess, how are things? hope the last few
> weeks went well…did you get my email from a
> while back (around cfa exam time, i think)?
Does akanska know about this?
 
Also if the land cost is included in the loan amount you can be more conservative and assume 60- 70% of the total loan commitment. What I have found is that the costs typically pile up on the 2nd half of the project.
 
farley013 Wrote:
——————————————————-
>
> Does akanska know about this?
damn. i gotta learn how to fly under the radar
 
thanks all for ur advice~!
err who’s akanska?
numi: yup, i got ur email but sorry haven’t replied yet as i flew off for summer vacation :) how are things? drop me an email!
 
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