Cash Hash » Loan/ Loans » Cash Loan/ Cash Loans » Using WACC as discount factor. Should i discount loan payments if (1-T) already accounts for tax deductibles?

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  #1 (permalink)
: I have a question about weighted average cost of capital. i have a basic understanding of it. The formula seems to make sense until the part about the tax rate.

(1-T)

I understand this is take into account the tax shield. My problem comes when applying the concept. I'm using WACC as a discount factor. If wacc already takes into account tax shield. do i still need to discount my loan payments? or not include loan payments as expense at all in my discounting?

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  #2 (permalink)
: 1. In the case of equity, dividend is paid from after-tax profits. Therefore, while working out the WACC, cost of equity is worked out before tax. That is by grossing up the dividend rate. For example, if tax rate is 30%, the grossing up is done this way:

Dividend rate * 100/70

2. In cash inflows, operating income should be shown on before tax basis.

3. If you proceed this way, hope there will be no problem. .
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