Question: When we learned CPV analysis in Chapter 3 we calculated

When we learned CPV analysis in Chapter 3, we calculated the amount of pretax profit needed to achieve a given level of after-tax profit. We could calculate a pretax rate of return given an after-tax rate of return. Why would it be inappropriate to use a pretax discount rate in capital budgeting? (For example, if a firm requires an after-tax return of 10% and has a marginal income tax rate of 50% why not use a 20% pretax rate of return and ignore the separate income tax calculations?)

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  • CreatedJanuary 26, 2015
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