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Hi
– Can you please explain as to when do we use after tax WACC discount rate and
before tax discount rate.– Mainly confusion is between before tax and after tax?
Under what circumstance do we use them ?As per my understanding we use after tax cost of capital for NPV and investment appraisals. Where we would use [ i(1-t )] where before tax rate is provided.
Considering Real and Nominal rate — (1+m)=(1+r)(1+i)
Real Rate – Use only when single inflation or no inflation ( no need to inflate variables)
Nominal Rate – Use when more than one inflation rate ( inflate variables)For Lease vs Buy — use Before Tax Cost of Debt (instead of cost of capital)
Please correct me if I am wrong in the above understanding.
Thanks.
Regards
Aakash.Just for reference to the doubt.
Section B Q27] Ridag Company – September Specimen
Section A Q22] Ring Company – September 2016.In both the question q27 – EAC/EAB and q22 – MV of Loan note – they have used the before tax rates.
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