I was wondering if anybody had any experience valuing S-Corps through DCF valuation. Since an S-corp acts as a pass-through entity where the business doesn't pay taxes, but the indiviudal/owner's salary is taxed, would you even use a tax rate to calculate NOPAT in the DCF or to calculate After-tax cost of debt in WACC? Thanks in advance for the help.
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you normalize their earnings / cf through using an assumed tax rate that is in line with comps ( most tax rates will be 20-25% in the USA)
Thanks for the reply. So all you have to do is take the tax rate from public comps?
^^^ I would also add a premium for tax benefits
How would you go about applying the premium for tax benefits and how much of a premium would you apply? Would you straight up deduct x% of the tax rate to make your NOPAT larger?
Also, I'm assuming in the comps to find the tax rate you would exclusively use small cap stocks right?
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