The Problem of Pre-Tax Valuations: A Note

Dempsey, Michael J.; McKenzie, Michael D.; Partington, Graham

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The Problem of Pre-Tax Valuations: A Note

Journal of Applied Research in Accounting and Finance, Vol. 5, No. 2, pp. 10-13, 2010

Monash U. Department of Business Law & Taxation Research Paper No. 1755324

11 Pages Posted: 5 Feb 2011

See all articles by Michael J. Dempsey

Michael D. McKenzie

The University of Sydney - Discipline of Finance; University of Cambridge - Cambridge Endowment for Research in Finance (CERF); Financial Research Network (FIRN)

Graham Partington

University of Sydney - School of Business - Finance Discipline; Financial Research Network (FIRN)

Date Written: December 1, 2010

Abstract

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

Dempsey, Michael J. and McKenzie, Michael David and Partington, Graham, The Problem of Pre-Tax Valuations: A Note (December 1, 2010). Journal of Applied Research in Accounting and Finance, Vol. 5, No. 2, pp. 10-13, 2010 , Monash U. Department of Business Law & Taxation Research Paper No. 1755324, Available at SSRN: https://ssrn.com/abstract=1755324