Is TIC Always the Most Appropriate Cost of Capital Measure?
Author: Bill Simonsen.; Mark D. Robbins.; Bernard Jump, Jr..
Source: Volume 22, Number 02, Summer 2001 , pp.1-13(13)
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Abstract:
True Interest Cost (TIC) is the technique recommended by the Government Finance Officers Association (GFOA) for measuring the borrowing costs of municipal bonds. Municipal bonds typically have serial maturities, where principal is paid each year. Interest rates often increase along with the maturities, following the typical upwardly sloping yield curve. Discounts, or premiums, are also common features of municipal bond issues, as are capitalized interest, debt service reserve funds, and other issuance costs. But as we will explain, TIC may not capture the effects of some of these common practices.Keywords: Net interest cost (NIC); Internal financing rate (IFR); cost of issuance
Affiliations:
1: Department of Planning, Public Policy and Management, University of Oregon; 2: Department of Political Science, University of Georgia; 3: Syracuse University, Maxwell School, Center for Policy Research.