Interest expense is typically excluded in the project cash flow because:
A) all projects are always financed only by equity.
B) taxes cannot be adjusted for the correct debt rate.
C) the discount rate or WACC reflects the cost of debt.
D) the analysis is too crude to handle debt impacts.

Question

Quizplus · Accepted Answer

Interest expense is typically excluded from project cash flow calculations because the discount rate (often the weighted average cost of capital or WACC) already incorporates the cost of debt. Including interest expense in the cash flows would effectively double-count the cost of debt financing.

Interest Expense Is Typically Excluded in the Project Cash Flow