When estimating cash flows for capital budgeting projects:
A)interest expenses incurred to finance the project are included.
B)interest expense is considered in the cash flow estimates only if the financing is principally from debt.
C)interest expense is never included in the cash flow estimates.
D)None of the above

Question

Quizplus · Accepted Answer

Interest expense is not included in cash flow estimates for capital budgeting projects because these analyses focus on operating cash flows. The cost of financing is accounted for separately, typically through the discount rate (cost of capital) in net present value (NPV) calculations.

When Estimating Cash Flows for Capital Budgeting Projects