The company recognises interest income on cash and money market deposits using the effective interest method (easyJet plc, 2016). The same method will be utilised to calculate both the interest income and the interest on bank and other borrowings. The formula for calculating effective rate is as follows:
Where is the interest received (paid) at time t and is the total cash and deposits (total debt). As shown in exhibit 4, the effective average interest on income is equal to 0.55% and that on borrowings is 1.35%. The effective rate on borrowing will be used as the cost of debt later on in the valuation. easyJet held 5 aircrafts under finance leases in 2016, which is a decrease from the 11 they held in 2015, hence the decrease in finance lease
Where is the interest received (paid) at time t and is the total cash and deposits (total debt). As shown in exhibit 4, the effective average interest on income is equal to 0.55% and that on borrowings is 1.35%. The effective rate on borrowing will be used as the cost of debt later on in the valuation. easyJet held 5 aircrafts under finance leases in 2016, which is a decrease from the 11 they held in 2015, hence the decrease in finance lease