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Sir please guide… while calculating Free Cash Flows.. why we are not incorporating the interest amount ?
We take account of the interest when we discount – the cost of capital includes the cost of debt borrowing.
To have interest in the cash flows as well would be accounting for it twice.But here we are taking Ungeared Cost Of Capital which means we are not incorporating the financial risk then why we are not including the Interest.
The question says that there are no plans to raise any new debt, and therefore there is no interest.
(When it comes to the APV later in the question, then we always discount as though all equity (so no interest) and add on the tax benefit on the interest payments)
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