In order to calculate the cost of a long-term asset that is financed with long-term debt, present values concepts would be used.

Question

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Present values concepts are used to determine the current value of future cash flows. When calculating the cost of a long-term asset financed with long-term debt, the cash flows associated with the asset (revenue generated, expenses incurred, etc.) are discounted back to their present value using the interest rate on the long-term debt. This allows for comparison of the cost of the asset to the cost of the debt used to finance it.

In Order to Calculate the Cost of a Long-Term Asset