Why Do a Project's Net Cash Flows Not Include Additional

question 26

Multiple Choice

Why do a project's net cash flows not include additional interest expense?

• A)Interest expense is a sunk cost and thus not relevant.
• B)Interest expense is not an actual cash expense.
• C)Interest expense is an indirect cost and thus not relevant.
• D)Interest expense is taken into account by the use of a required rate of return used in the decision method.

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Definitions:

Tax Credits

Amounts subtracted directly from the taxes owed to the government, incentivizing certain economic activities or investments.

Transfer Payments

Non-compulsory payments made by the government to individuals or other entities, without a direct exchange of services or goods; examples include pensions and subsidies.

Government Securities

Financial instruments issued by the government to borrow money from investors, typically with a promise to pay back with interest.

Deficit Finance

The practice of funding government spending by borrowing rather than from taxation, leading to budget deficits.