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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Investment Appraisal and the post tax cost of capital
Dear John,
From my studies I understand that when an NPV question considers cash flow of tax deductions and allowances that I should adjust the cost of capital ( eg. tax is 25%, then i should use the discount factor of 9%.) And where tax is ignored, we use the pre tax rate.
I have found practice questions that don’t do this tax adjustment to the discount factor so I am confused. Could you please enlighten me?
Many many thanks for you continued support.
Roisin
It is only the cost of debt that is affected by tax, so you can’t simply take the pre-tax WACC and then take off the tax.
Without seeing the questions you refer to then I cannot really help more.