When analyzing a proposed investment, we

Question

(will/won't) include interest paid or any other financing costs.

Answer 1

When analyzing a proposed investment, we won't include interest paid or any other financing costs.

This is because the analysis typically focuses on the cash flows generated by the investment itself, rather than the costs of financing it. This allows for a clearer evaluation of the investment's performance on its own merits, independent of how it is financed.

Answer 2

When analyzing a proposed investment, we won't include interest paid or any other financing costs.

This is because financing decisions (how to pay for the investment) should be kept separate from investment decisions (whether the project itself creates value). This principle helps avoid several problems:

1. Projects could appear better or worse based purely on how they're financed, rather than their underlying merit
2. Different investors may have different financing options available, so including financing costs makes comparisons difficult
3. The same project could appear to have different values to different investors just because of their financing costs

Instead, we should evaluate the project based on its operating cash flows and then consider financing separately. This is sometimes called the "separation principle" in corporate finance.

Would you like me to explain more about how to properly analyze investment cash flows?