Can someone please explain as to why we use statutory tax rate (instead of the effective in the calculation for WACC?? One reason I could think of is that statutory is more normalized.
| +519 | Change My Mind: Banks Shouldn’t Hire Foreigners at All | 122 | 6s |
| +317 | Article - UBS’ Investment Bank Keeps Losing Ground | 40 | 5h |
| +301 | Don’t work at UBS - UBS Sucks | 30 | 3h |
| +79 | Should My Intern Get a Return Offer? | 31 | 1h |
| +60 | When to Leave Office as Intern | 8 | 3d |
| +49 | Best IB Group Overall? | 28 | 4h |
| +39 | Would you rather be a Touse Squid or a Bouse Mogger in IB | 2 | 3d |
| +33 | What do you say to ppl who don’t know EVR/LAZ/CVP/PJT | 28 | 8h |
| +31 | STEM student lost in London IB recruiting | 17 | 1d |
| +29 | F*ck it I'm Going to Med School | 12 | 30m |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
anyone??
I'm going to bump this because I came on to ask a similar question about WACC. A colleague of mine states that WACC is tax adjusted to account for the CAPM which is implicitly tax effected. I've always thought that the cost of debt was tax effected to account for tax benefits. If it is the former, then the reason we use say 39% is because we assume that the purchaser is gaining an incremental benefit from the company, that is to say that your company should be taxed at the rate of the next dollar earned. Lower tax rates in US firms are largely related to credits and foreign operations. If you can make the argument that your tax should be lower, then by all means run with it and get ready for battle on review.
It is always the cost of debt that is tax effected..to account for the interest tax shield.
Can anyone answer as to why we use effective tax rate for calculation of FCF whereas Statutory for calculation of WACC???
bump. does anyone know the answer?
"In doing projections, it is far safer to use the marginal tax rate since the effective tax rate is really a reflection of the difference between the accounting and the tax books. By using the marginal tax rate, we tend to understate the after-tax operating income in the earlier years, but the after-tax tax operating income is more accurate in later years If you choose to use the effective tax rate, adjust the tax rate towards the marginal tax rate over time." (A. Damodaran)
Sit est dignissimos ut qui. Et iure omnis molestiae. Qui ut sed soluta quia officia. Fugit dolores exercitationem molestiae pariatur placeat et fugit. Quis ut quibusdam consectetur incidunt at. Et eius laudantium repellat autem hic ut modi. Maiores rem quidem sit eos.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...