However, we show that when valuing cash flows with a well-defined marginal corporate tax rate, the present value of pre-tax cash flows discounted at a pre-tax discount rate exactly matches the present value of post-tax cash flows discounted at a post-tax discount rate. We present analytical examples to demonstrate this equality. Pre-tax contributions. Investments made with pre-tax contributions, such as 401(k)s 1,2 and traditional IRAs 1, are also described as "tax-deferred."They allow you to postpone paying taxes on the amount you contribute and the earnings that are generated as long as they remain in the account. If I understand the question correctly, there should be no pre-tax discount rate. Discount rates used for the purposes of discounting cash flows should be based on after-tax cost of debt and cost of equity. Therefore, a pre-tax discount rate has no real validity because after tax cash flows should be discounted at after tax discount rates. In the last paragraph of the case, it says ” Hebac co currently has a norminal after-tax weighted average cost of capital (wacc) of 12% and a real after-tax wacc of 8.5%. The company uses it current wacc as the discount rate for all investment projects. for any valuation is a post-tax rate that reflects the return that a provider of finance would require for investing in an asset that generates cash flows of specified amounts, timing and risk profile. This is also the case when determining recoverable amount for the purposes of IAS 36. 9. Appendix A]).
25 Aug 2015 PDF | Lonergan (2009) appropriately recommends that “discounted cash flow analysis should be configured on the basis of post-tax cash flows
In finance, discounted cash flow (DCF) analysis is a method of valuing a project, company, Time value of money (risk-free rate) – according to the theory of time Discount the cash flows available to the holders of equity capital, after allowing for the debt capital (but allowing for the tax relief obtained on the debt capital) However, in many cases, a post-tax discount rate grossed up by a standard rate of tax may be a reasonable estimate of the pre-tax rate. Page 6. 5. Impairment 23 Feb 2015 Pre-tax versus Post-tax: If your cash flows are pre-tax (post-tax), your discount rate has to be pre-tax (post-tax). It is worth noting that when VIU as per 1 January 2013 calculated using post-tax cash flows and a post-tax discount rate would be, as follows: 2013. 2014. 2015. 2016. 2017. Pre-tax cash maintaining the same cash flow assumptions (discounting of pre-tax cash flows at a pre-tax discount rate or discounting post-tax cash flows at an after-tax rate) In theory, using a post-tax discount rate together with post tax cash flows should result in the same recoverable amount as would be determined when using a pre -
However, the discount or cap rate and the measure of income must be compatible, e.g., an after-tax discount rate should be applied to after-tax income.
However, in many cases, a post-tax discount rate grossed up by a standard rate of tax may be a reasonable estimate of the pre-tax rate. Page 6. 5. Impairment 23 Feb 2015 Pre-tax versus Post-tax: If your cash flows are pre-tax (post-tax), your discount rate has to be pre-tax (post-tax). It is worth noting that when
The average reported. IDR (implied discount rate) for each of these transactions was in the range 4.4 to 8.4% for post- tax cashflows and 7.8 to 10.6% for pre-tax
The average reported. IDR (implied discount rate) for each of these transactions was in the range 4.4 to 8.4% for post- tax cashflows and 7.8 to 10.6% for pre-tax tax status of the discount rate or the direct capital- “discount before-tax cash flow by an after-tax rate “prejudgment interest” from the analysis of the pre- tax 23 Apr 2015 As the article shows, it is easy to miscalculate the pre-tax cost of capital of debt; Re the post-tax cost of equity; and t is the corporation tax rate. As these are nominal, post-tax cash flows, it is appropriate to discount them
In theory, using a post-tax discount rate together with post tax cash flows should result in the same recoverable amount as would be determined when using a pre -
The discount rate is set equal to the weighted average costs of capital. All references are to the after-tax WACC unless indicated. 127 Debt Pre-tax debt rate. to calculating tax-adjusted discount rates when debt is risky. There are We analyze a firm with expected pre-tax cash flows C,, at dates t= 1,, r. The first equality results from setting the after-investor-tax returns on riskless debt and riskless.
this report “Actuaries and Discount Rates” is the result of their initial research into schemes were designed with no post-award pension increases (and no pre- tax rate (or rates) that reflect(s) current market assessments of the time value of. to the post tax cost of both the debt and the equity. It is discount rates being calculated in the correct, consistent terms the post-tax (vs pre-tax) cost of capital. This paper derives tax-adjusted discount rate formulas with Miles-Ezzell leverage policy, We derive the formula for a firm with expected pre-tax cash flows Ct, at The first equality results from setting the after-investor-tax returns on riskless no simple adjustment that can be applied to convert a pre-tax TIPS rate to an after -tax discount rate. Double digit inflation can even reduce the after-tax re-. 23 Oct 2012 Pre-tax vs post-tax. IAS 36. □ Requires VIU to be determined using pre-tax cash flows and a pre-tax discount rate. In practice. □ WACC is