Sir, I have read in Kaplan book that Interest Payments should not be included because NPV calculation takes account interest payments by the cost of capital.
Could you please explain what does it mean by interest taken account by cost of capital. I cannot understand this!
Ask the Tutor ACCA FM
Interest Payments in NPV calculation
5y ago
5y ago#1The whole purpose of discounting is to account for the interest cost of money to the business. The calculation of the discount rate (the cost of capital) includes the interest on any borrowed money, and so to include the interest in the cash flows as well would be accounting for it twice.
This is all explained in my free lectures. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well. If you are watching the lectures then you do not really need a Study Text.
The essential book, however you choose to study, is the Revision/Exam Kit. It is full of past exam and other exam standard questions for practice, and practice is vital to passing the exam.
Sign into reply to this topic.