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Sir I have a generic doubt in the IRR calculation. For cashflows (interest payments), we sometimes take after tax interest payments and sometimes pre tax . I do not understand when to take post tax and when to take pre tax.
In qs Sigra Co 12/12 they have not considered interest payments post tax for IRR calculation.
Little confused here.
When we are calculating the cost of debt to the company, we take the after tax interest.
When we calculate the return to investors (and when we calculate market values if we are given the return to investors) we use the before tax interest.
It is because investors are not affected by company tax, whereas the company does get tax relief on the interest.
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