The costs of external financing must be deducted from the net present value (NPV) of a project to evaluate if it is worth undertaking.

Question

Quizplus · Accepted Answer

The costs of external financing, such as interest or fees, represent an outflow of cash and reduce the cash inflows generated by a project. Therefore, these costs need to be taken into account to determine the net cash flows of a project and calculate its NPV accurately.

The Costs of External Financing Must Be Deducted from the Net