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Question 23.7
In answers of task 1, it says “Interest costs of $6,000 per year are irrelevant – interest is a finance cost. The discount rate provides the investor compensation for interest, which means that interest is never a relevant cost”.Professor so it means that inflation, risk and interest which ever is provided by discount rate is irrelevant?
Inflation and risk are not ‘provided by the discount rate’.
The reason for discounting is to account for the interest being paid by the company. We do not include interest in the cash flows because to do so would be accounting for the interest twice.
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