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I know we have to use PRE-TAX discount rate instead of POST-TAX discount rate to calculate VIU. But I do not understand the rationale behind this (why to use PRE-TAX instead of POST-TAX). Can somebody explain this in simple terms? Thanks.
Well, in simple terms, it should be PRE TAX because the rate used should reflect the current risks specific to the asset.
The standard clearly states that the discount rate reflects current market assessments of the time value of money and the risks specific to the asset. [IAS 36.55]
Hope this clears it.
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