Why is it important to consider the consequences of taxes when financing a new project?

It is very important to consider the consequence of Taxes because  the same will impact the decision making.there are various types of financing which will be offering with tax deduction and there are other types of financing which will not be offering with the tax deduction To maximize the firm value, financial managers of both small and medium enterprises as of multinational enterprises will try to optimize their companies tax liabilities. Tax considerations regarding location, organizational form, enhance the risk that financial decisions will be guided by tax purposes rather than the management objectives.  Firstly we need to consider the after tax returns from a new project to know the actual Returns.

 Secondly for comparing different projects we need to know the cost of capital

Cost of capital is calculated as the weighted average cost of different sources of funds used by the business.

We consider the after tax cost of debt in the calculations because interest payment on debt is tax deductible.

Although value maximization is the leading principle in financial management

 tax planning strategies has some distorting impact on a company's financing and investment decisions

Usage of debt reduces the cost of capital