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DISCOUNT RATE TO USE

This topic has 1 reply, 2 voices, and was last updated 1 month ago by John Moffat.

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December 5, 2022 at 6:09 am #673421
rgak1126
Member
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Hello Sir
Thank you for your videos, they have been the most helpful to me to help me prepare for my F9 Financial Management attempt on 9th December.
One area which confuses me a lot is which discount rate to use i.e the before tax or after tax discount rate.
I hope you can clarify this doubt as it would help me a lot for my upcoming exam.
Thank you
December 5, 2022 at 7:58 am #673438
John Moffat
Keymaster
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Assuming that you are referring to investment appraisal, then we always discount at the cost of capital to the company. The cost of capital is always calculated after tax, as explained in my lectures on the calculation of the cost of capital.
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