# after tax vs before tax?

When an amount is given which is part of investable assets (receive inheritance of xxxxx) and they state after tax no adjustment is made.

But when calculating required rate of return and they ask before tax it would be the lower amount in comparison to after tax.

Example:

tax rate is 20%

before tax return is 8% and after tax return is 10%

This is according to the text (book 2, P193) but it seems to be the wrong way around?

I don’t really understand your question, but before tax is before taxes are removed and after tax is after taxes are removed…

If you have an after tax value you have to gross it up for taxes. (then add inflation if nominal)

Before tax = After Tax/(1-T)

I think I know what yu are saying.

The way I come to understand after tax after doing many mocks is:

After tax is the you need to earn after taxes have already been taxen out.

so if you have 100 usd, and you want 10 in one year, and you get taxed at 20%, or 50%

it does not matter, cause the after tax is 10%, you want ten 10% after the tax is deducted whatever it is

Thanks,

According to the formula above - before tax return would be lower than after tax return.

For some reason I feel that after taxes is removed the return should be lower.

The more I study the dumber I get…

Thanks,

According to the formula above - before tax return would be lower than after tax return.

For some reason I feel that after taxes is removed the return should be lower.

The more I study the dumber I get…

The denominator will be inferior to 1 so the result will be higher…

Thanks,

Also, say all the inputs are before tax and we need to calculate before tax return - no tax adjustement are needed, right?

Same goes for after tax , if all the inputs are after tax and we need to calculate after tax return - again, no adjustement are needed ,right?