Capital budgeting is the process by which a business evaluates an alternative based on the estimated future benefits and costs. It is a management tool that is effective in decision making related to business operations.

Reason for which the interest charges are not taken into consideration while calculating cash flow of capital budgeting:

• The interest charges are used to compute the financing cost for debts.
• This financing cost is considered for capital budgeting analysis.
• Therefore, if interest charges are deducted again, it will be double deduction of financing charges.

Therefore, the interest charges are not deducted as the financing cost already considers those charges.