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Author Question: Should financing costs such as the returns paid to bondholders and stockholders be considered in ... (Read 90 times)

beccaep

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on: Jul 11, 2018
Should financing costs such as the returns paid to bondholders and stockholders be considered in computing after-tax operating cash flows? Why or why not?
 
  What will be an ideal response?

Question 2

There is an inverse relationship between the quality or rating of a bond and the rate of return it must provide bondholders.
 
  Indicate whether the statement is true or false


TINA

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Reply #1 on: Jul 11, 2018
Answer to Question 1

Financing costs are not an incremental cash flow for capital budgeting purposes. Financing costs are a direct consequence of how the project is financed, not whether the project is economically viable. Financing costs are embedded in the required rate of return used to discount project cash flows.

Answer to Question 2

TRUE


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