The Problem of Pre-Tax Valuations: A Note
Journal of Applied Research in Accounting and Finance, Vol. 5, No. 2, pp. 10-13, 2010
11 Pages Posted: 5 Feb 2011
Date Written: December 1, 2010
This paper highlights the problems in valuation that are inherent in the use of the pre-tax cost of capital and in other tax adjustments to the discount rate. The source of problems in relation to the pre-tax discount rate is clarified and examples are given to highlight the nature of the problems. Finally, a solution is provided that overcomes these problems. However, it is recommended that pre-tax valuations are best avoided.
Keywords: Financial Reporting, Discount Rates
JEL Classification: M40, M41
Suggested Citation: Suggested Citation