When assembling the cash flows to calculate an NPV or IRR th

When assembling the cash flows to calculate an NPV or IRR, the project’s after-tax interest expenses should be subtracted from the cash flows for: The NPV calculation, but not the IRR calculation. The IRR calculation, but not the NPV calculation. Both the NPV calculation and the IRR calculation. Neither the NPV calculation nor the IRR calculation.

Solution

Solution:

Well, the way that I look at it, the CFO is = (S-C-D)(1-TR%) + D. To calculate the NPV, you need 3 different cash flows: Initial outlay, annual after-tax operating cash flow, and terminal after-tax non-operating cash flow.

I believe that the interest expense (which is a “S” in the above equation, since it is an operating cash flow and a tax-deductible cash charge, is used in calculating the CFO, and hence, the NPV.

However, the answer to this will be neither the NPV calculation nor the IRR calculation.