For firms that have debt on their balance sheets, interest expense is commonly seen as an expense on the firm's income statement. In capital budgeting, however, we ignore interest expense. Why? Group of answer choices A) Because the cost of debt is already included in the WACC, and including interest expense in the calculation of cash flows would then be "double counting" it. B) Capital budgeting is done from the perspective of the common stockholders, so it ignores interest expense C) Like depreciation, interest expense is a "non-cash" expense D) Because firms ignore the pleas of banks and bondholders to pay their interest. This is why Silicon Valley Bank failed.
For firms that have debt on their balance sheets, interest expense is commonly seen as an expense on the firm's income statement. In capital budgeting, however, we ignore interest expense. Why? Group of answer choices A) Because the cost of debt is already included in the WACC, and including interest expense in the calculation of cash flows would then be "double counting" it. B) Capital budgeting is done from the perspective of the common stockholders, so it ignores interest expense C) Like depreciation, interest expense is a "non-cash" expense D) Because firms ignore the pleas of banks and bondholders to pay their interest. This is why Silicon Valley Bank failed.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
For firms that have debt on their balance sheets, interest expense is commonly seen as an expense on the firm's income statement. In capital budgeting, however, we ignore interest expense. Why?
Group of answer choices
A) Because the cost of debt is already included in the WACC, and including interest expense in the calculation of cash flows would then be "double counting" it.
B) Capital budgeting is done from the perspective of the common stockholders, so it ignores interest expense
C) Like depreciation , interest expense is a "non-cash" expense
D) Because firms ignore the pleas of banks and bondholders to pay their interest. This is why Silicon Valley Bank failed.
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