When discounting pre tax cash flows it is often assumed that discounting pre tax cash flows at pre tax discount rates will give the same answer as if after tax cash flows and after tax discount rates were used. However, this is not the case and material errors can arise, unless both the cash flows and the discount rate are after-tax. Drawing upon a series of analytical examples, common conceptual flaws in discount rate and cashflow stream selection are highlighted. In light of these, it is argued that discounted cashflow analysis should be configured on the basis of after tax cashflows discounted with after tax discount rates.
Journal Of Applied Research In Accounting And Finance Collection
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