Pre and post tax discount rates and cash flows defbg

Discount Rates and Tax of the tax saving from debt, switching post-tax to pre-tax returns, the correct version of the capital asset of the unleveraged ﬁrm is the investor’s after-tax cash ﬂow discounted at the after-tax required rate of return for a cash ﬂow with this level of risk: VA= C(1−TC)(1 −TPE) This is a key step, where the discount rate has to be estimated consistently with the cash flows, with pre-tax discount rates for pre-tax cash flows, and post-personal tax discount rates for post-tax cash flows. It is at this stage that inconsistencies can enter easily, since most of the public data that we have and use in estimating discount

8 May 2018 2) The discount rate (or rates) should be a pre-tax rate (or rates) that reflect(s) As the WACC is a post-tax rate, post-tax cash flows are used, Cash Flows (DCF) will employ a discount rate to calculate Note not all forests have been analysed for both pre - and post-tax discount rates. Discount Rates Discount rate. Pre-tax. As per IFRS 13.B14, discount rate reflects assumptions that are consistent with those inherent in the cash flows (typically post-tax). 17 Mar 2016 Discount rate is the rate of return (interest rate) used in discounted cash-flow calculations. Most often, it is pre-tax; post-tax. If relevant cash-flows in the calculation include the tax effects, after-tax discount rate shall be used.

Pre tax cash Flows discounted by Pre tax Discount rate is not equal Post tax cash Flow discounted by post tax discount rate except in case of cash flows discouned to pepetuity without growth. The pre tax calculation must be fundamentally flawed given that the present value of the pre tax cash flow (i.e. 9090) exceeds the after tax value of the

The discount rate is a critical ingredient in discounted cash flow valuation. of capital; pre-tax cash flows to pre-tax rates; post-tax cash flows to post-tax rates;

When discounting pre tax cash flows it is often assumed that discounting pre tax cash flows at pre tax discount rates will give the same answer as if after tax cash flows and after tax discount rates were used. However, this is not the case and material errors can arise, unless both the cash flows and the discount rate are after-tax. Discounted After-Tax Cash Flow: An approach to valuing an investment that looks at the amount of money it generates and takes into account the cost of capital and the investor's marginal tax rate However, Lonergan (2009) points out that a naïve mechanical adjustment to arrive at a pre-tax discount rate may yield different results when discounting pre and post-tax cash flows at appropriate discount rate alone, in all the examples it is assumed, for the purpose of illustration that post-tax cash flow is equal to pre-tax cash flow multiplied by a factor equal to one less the marginal corporate tax rate.

8 May 2018 2) The discount rate (or rates) should be a pre-tax rate (or rates) that reflect(s) As the WACC is a post-tax rate, post-tax cash flows are used,

For calculating VIU, IAS 36 requires pre-tax cash flows and a pre-tax discount rate. WACC is a post-tax rate, as are most observable equity rates used by valuers. 8 May 2018 2) The discount rate (or rates) should be a pre-tax rate (or rates) that reflect(s) As the WACC is a post-tax rate, post-tax cash flows are used, Cash Flows (DCF) will employ a discount rate to calculate Note not all forests have been analysed for both pre - and post-tax discount rates. Discount Rates Discount rate. Pre-tax. As per IFRS 13.B14, discount rate reflects assumptions that are consistent with those inherent in the cash flows (typically post-tax). 17 Mar 2016 Discount rate is the rate of return (interest rate) used in discounted cash-flow calculations. Most often, it is pre-tax; post-tax. If relevant cash-flows in the calculation include the tax effects, after-tax discount rate shall be used.

but more as a basis for developing a post-acquisition Ke = cost of equity, Kd = after tax cost of debt, The discount rate is an investor's desired rate of return, rate. The selected Rf should match the duration of the underlying cash flows.

The discount rate (rates) shall be a pre-tax rate (rates) that reflect(s) current (b) the risks specific to the asset for which the future cash flow estimates have not 136 to use a pre-tax discount rate because WACC is a post-tax discount rate. Discounting post-tax cash flows at a post-tax discount rate and discounting pre- tax cash flows at a pre-tax discount rate should give the same result when there are.

Pre tax cash Flows discounted by Pre tax Discount rate is not equal Post tax cash Flow discounted by post tax discount rate except in case of cash flows discouned to pepetuity without growth. The pre tax calculation must be fundamentally flawed given that the present value of the pre tax cash flow (i.e. 9090) exceeds the after tax value of the 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 valuing companies, we look at cash flows after corporate taxes and prior to personal taxes and discount rates are defined consistently. IAS 36 requires the use of pre-tax cash flows and pre-tax discount rates in the impairment test. In practice, primarily because of the widespread use of the Capital Asset Pricing Model — post-tax costs of equity are generally determined and used in the entity’s computations of the discount rate. Discounting post-tax cash flows

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The discount rate is a critical ingredient in discounted cash flow valuation. of capital; pre-tax cash flows to pre-tax rates; post-tax cash flows to post-tax rates;

8 May 2018 2) The discount rate (or rates) should be a pre-tax rate (or rates) that reflect(s) As the WACC is a post-tax rate, post-tax cash flows are used,

but more as a basis for developing a post-acquisition Ke = cost of equity, Kd = after tax cost of debt, The discount rate is an investor's desired rate of return, rate. The selected Rf should match the duration of the underlying cash flows.