This is where you set interest rates for the money borrowed to finance the development project. Interest in Prodev is calculated using a monthly (or quarterly) cashflow. At the end of each period (month or quarter) interest will be respectively charged/accrued on any negative/positive balances using the Debt/Accrual Interest rate that you have provided.
Debt Interest Rate
The Debt Interest Rate box is where you to enter the interest rates charged on the money borrowed to finance the development project. By default the Debt Rate is set overall, this means one rate for all months during the project.
The overall Debt Rate can also be entered using the Detailed Timing screen (see Detailed Timing section).
Click on the Debt Interest box and the entire column of interest rates will highlight, type in the annual interest rate (to use 6% enter as 6 and not as .06) then press the Enter key. The rate entered will be applied to all months. The compounding and charging of the annual rate entered can be altered, in the UK version the defaults are quarterly compounding and charging.
If you want to enter different interest rates for each month then click the ‘Edit-Item’ button which allows you to edit rates for individual months. You can select groups of lines to edit as well.
You may wish to consider whether you need to apply both a debt and accrual interest rate.
Accrual Interest Rate
The Accrual Rate sets the interest rate at which the project will benefit from positive cashflow, if this happens. Thus, it assumes that after costs and interest costs have been repaid, any monies earned from the project will be retained and effectively earn revenue.
This is not often done but theoretically should be, on longer cashflows in particular, as it more accurately reflects the benefit of profit being generated by the development.
Use the ‘Accrual%’ button to display the Accrual Interest Rate. In use it is exactly the same as Debt Interest. If the Accrual Interest rate box is showing you can use the ‘Debt%’ button to return to the Debt Interest box. The Debt Interest box displays by default.
Note that you can identify which Interest Box is active by looking at its top banner, which will display ‘DEBT’ or ‘ACCRUAL’ as appropriate.
Edit All / Item button
This button changes the way you enter either the Debt or Accrual interest rates; either globally (a single entry changes the rate for all periods) or by editing a specific month / group of months. When set globally the entire column of interest rates will highlight. When set individually, use the mouse to select an item (or a group of items) for editing. You can also use Shift+Cursor Up and Shift+Cursor Down to select items in the same way.
Interest Compounding
Interest in Prodev is entered as a rate per annum and you can set the number of compounding periods using the 'Compound' drop-down. In the UK version this is initially set to quarterly meaning there are four compounding periods in a year. There are settings for daily, monthly, quarterly, six monthly and annual compounding.
For example 6% compounded quarterly gives an annual rate (APR) of 6.14% being the quarterly rate of 1.5% compounded 4 times per annum (1.015 ^ 4 = 1.0614).
Apply Interest
The month in which interest is charged in Prodev is controlled by the 'Apply' drop-down. In the UK version this is initially set to quarterly meaning that the interest charges will be paid every March, June, September and December. There are settings for monthly, quarterly, three monthly, six monthly and annual charging. Bear in mind that whilst this setting will change the frequency in which interest charges are paid out (or received in the case of accrual interest) it will not change the total interest amount. This is because interest is being charged every month and then simply rolled up until the period in which it is paid or received.