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Pre and post tax Dis rate

Final 1434 views 1 replies

 

Dear Frenz,

I ve a doubt regarding Pre tax Discount rate & post tax discount rate.

Suppose my yearly lease rental is 10000(Pre tax).Discount rate 10%( pre tax).the present value for payment of lease rental at the end of year 1 is 10000/1.1=9090.91

Now lets assume tax rate to be 30%.so my post tax lease rental after considering tax saving 3000 is 7000.

Also my post tax discount rate 7% ie 10%*(1-.3).So my present value after tax for lease rental paid after one year is 7000/1.07=6542.

Can some one explain me ?is there in fault in my concept.why aint both figures same....wats my mistake?

Replies (1)

Hi Girish, it is not ur fault bro. When the pre tax discount rate is used, u may get a different amount. It is the problem with the formula  POST TAX RATE=PRE TAX RATE(1-t). Searched on the net regd this & got this document. Pls have a look.  


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