Spud’s model of how interest rate hikes cause inflation – News Block

That’s your starting point, which you then change to this:

The big increase is, however, in interest costs. The company pays 3% interest on the bank’s base rate. So the rate has grown from about 3% to 8%, or about 160% growth.

So you’re assuming at that start a zero base rate, so a 3% interest bill.

OK. So how much debt does the company have? Well, to pay 5 when the interest rate is 3, then they must have an outstanding debt of 170(-ish).

Now, it is true that I am not an accountant, nor am I a banker or financier. But a service company, which Spud says it is, with a debt load of 170% of sales? 170% of sales, he notes.

I don’t know, I really don’t know. But would that be considered, by an accountant, a reasonable model assumption?

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