WHY OPERATING CASH FLOWS?
Non-operating cash flows consist of finance related cash flows such as interest payments or dividends. When making financial decisions within a capital budgeting context, the discounted cash flow decision models (i.e., Net Present Value) uses a discount rate that reflects the weighted average cost of capital and this rate already reflects the cost of debt and equity financing. If financing cash flows are included in the capital budgeting decision process, the costs of financing are being included in the calculation twice, effectively double counting the costs. This topic is discussed in greater detail later in the capital budgeting topics.
