How is interest expense that is associated with a project treated in the capital budgeting process?
A) It is treated as a cash outflow when estimating the incremental cash flows associated with a project.
B) It is built into the discount rate.
C) It is considered a synergistic incremental cash flow.
D) Interest expense is not relevant to any capital budgeting decisions.

Question

Quizplus · Accepted Answer

Interest expense is typically accounted for in the discount rate (e.g., the cost of capital) used to evaluate the project's cash flows in the capital budgeting process, rather than being treated as a separate cash flow. This approach reflects the cost of financing the project.

How Is Interest Expense That Is Associated with a Project