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Hi everyone. I had a query. If we’re financing a project by a bank loan, will we include the interest expense as a cash outflow if we’re using WACC as the discount rate? Thanks.
No – we never include interest payment in the cash flows.
The WACC includes the cost of the debt borrowing, and therefore discounting at the WACC effectively takes account of the interest (that is why we discount). To include the interest payments in the cash flows would effectively be dealing with it twice 🙂
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