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sir we always say that we shouldn’t include interest payments as cash outflows within NPV computation as these are taken account of by cost of capital.
However, i have always struggled in establishing the premise for the same. Do you mind sharing the rational?
I do actually explain this in my lectures!
The whole reason for discounting is to account for the interest cost – there is no other reason for doing it. If there was no interest payable them we would simply add up the net cash flows without discounting.
Given that the cost of capital includes the interest payable on any borrowings, then to include them as cash flows as well would be accounting for it twice.
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