DQ2W10 - Capital Budgeting and Cost of Capital

Discussion Topic

You are part of a team that is determining whether your company should undertake a new project. Your team calculated the NPV of the new project using the cost of capital (weighted average cost of capital) to discount the future cash flows. However, the Chief Financial Officer noticed that your team excluded the interest payments in estimating the future cash flows.

Why did your team exclude interest payments in the estimation of future cash flows of the new project? Explain.

What method should your team use to evaluate the feasibility of the new project if the Chief Financial officer insists on including interest payments? Be detailed in your response.