Answer Happy

How does the tax deductibility of the interest expense affect the net present value (NPV) calculation of a project's free cash flow? A) Interest is subtracted when calculating the pre-tax earnings before applying the tax rate in the free cash flow equation B) The tax deductibility of interest lowers the cost of debt and therefore the overall cost of capital used for discounting the free cash flows, C) Interest expense increases the cost of equity and therefore the overall cost of capital used for discounting the free cash flows. D) The tax deductibility of interest increases the weighted average cost of capital (WACC). E) Interest expense does not affect the NPV calculation at all because it is a financing item. the market expects