I’m watching one of the lectures and it’s saying that EBIT doesn’t change whether you capitalize or expense interest. So when you start depreciating the non current asset isn’t that an operating expense?
they don’t say anything about depreciation, just that, the option of capitalizing or expensing interest has no effect on EBIT, just by definition (because it’s earnings before interest) …no?
correct but what happens when you start expensing?
i think when you expense, your earnings would be more than if you were to capitalize in the beginning, because depreciation + interest (under capitalization) is more than the operating expense you pay when you expense it, but in the future, it’s the opposite??
yes… in case of interest capitalizing its true EBIT wont change, your irr rate of return would make it such a way that the interest payment = cfo but your principal payments become cfi… but net out to=payment and should not effect EBIT. Now, Am I right?
your mixing up leases with capitalizing interest.
I have no idea what you’re talking about ov