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Hello everyone,
hope it is possible to post here such type of questions.
Anyway, thank you very much in advance!I am a little bit confused with cost of capital.
Should I use after-tax WACC in the models due to the reason that a tax hal already taken into consideration in the first part of the model, shouldn’ I?
There are before-tax and after-tax WACC in some exercise.If my opinion consist a mistake, could you explain the right version for clear understanding.
Thank you!
Best regards, Victoria
In investment appraisal models, such as the Dividend Valuation Model (DVM), the after-tax Weighted Average Cost of Capital (WACC) is typically used.
This is because the after-tax WACC takes into account the tax savings on interest payments. By using the after-tax WACC, the model incorporates the tax benefits associated with debt financing.
However, there may be cases where the before-tax WACC is used, depending on the specific question or scenario. It is important to carefully read the question and follow any instructions provided regarding the use of before-tax or after-tax WACC.
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