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Hello sir,
I wanted to ask, if borrowing are made from the bank as a loan to invest in a project, how is the interest cost an Irrelevant cost?
Isn’t the interests cost arises due to borrowing of loan, which was due to investing in project? So that means its due to the project.
But how is it IRRELEVANT?
help needed to understand.
kindly
Sukaina.The reason for discounting when we are calculating a present value is in order to account for the interest on the loan. If we were to include the interest as a cash flow as well then we would be accounting for it twice.
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