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Hey Sir,
Good day.
kindly clarify me on this issue in the september 2016 question paper of F9. in question 32 the question requires us to calculate the NPV of a project. In the last paragraph of the case, it says ” Hebac co currently has a norminal after-tax weighted average cost of capital (wacc) of 12% and a real after-tax wacc of 8.5%. The company uses it current wacc as the discount rate for all investment projects.
In fact I want a clear explanation as to when to use pre-tax or post-tax norminal and real discount rates.Thanks sir in advance
my soulWe always discount projects at the after-tax cost of capital.
We either discount the nominal (actual) cash flows at the nominal (actual) cost of capital, or the current price (real) cash flows at the real cost of capital.
All of this is explained with examples in my free lectures. The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
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