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#cfa-level-1 #corporate-finance #reading-35-capital-budgeting #study-session-10
Financing costs are reflected in the required rate of return
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3. BASIC PRINCIPLES OF CAPITAL BUDGETING
, analysts want to know the after-tax operating cash flows that result from a capital investment. Then, these after-tax cash flows and the investment outlays are discounted at the “required rate of return” to find the net present value (NPV). <span>Financing costs are reflected in the required rate of return. If we included financing costs in the cash flows and in the discount rate, we would be double-counting the financing costs. So even though a project may be financed with some combinati


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