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Why interest cost is not relevant for cash flow?
I looked it up and simply says its already taken
account by discounting .
Pls explain to me how ?Many thanks
The reason for discounting is to account for the interest cost of capital. The calculation of the weighted average cost of capital includes the cost of all the finance – equity plus debt borrowing.
Because the discounting is effectively ‘removing’ the interest cost, it would be wrong to include it in the cash flows – it would effectively be counting it twice.
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