Sometimes the expenses and liquidity needs are “grossed up” to pre-tax levels in the CFA-given answers to IPS questions. The question I have is when do we assume that the expenses should be divided by 1-tax rate to gross them up to pre-tax levels and when should we assume that they are fine the way they are?
This exam question asks for required rate of return pre-tax, so that seems to color the rest of the essay topic. For example, normally, I would subtract the $200,000 college payment from investible assets, but here I have to gross up the $200,000 into (200,000/(1-.2))=$250,000.
Bottom Line: When can I assume that income/expenses are pre-tax and when can I assume they are net of tax (as they usually are)?