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You attend an investment committee where your boss, the Chief Executive Office (CEO), and other executives meet to discuss capital budgeting

Finance

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You attend an investment committee where your boss, the Chief Executive Office (CEO), and other executives meet to discuss capital budgeting. A new finance intern was invited to experience how investments decisions are made for a firm. The intern notices that none of the projects include interest expense in the cash flow calculation. The intern wants to make an impression and points out the error in the cash flows. Without embarrassing the intern, you respond: If we included the interest expense we would be double counting the interest since we use debt cost of capital in the discount rate to value firm projects. You must have been asleep in your finance classes at ASU. O We only include interest expense when we have bank loans. The interest expense is accounted for in depreciation.