Pre-Tax Returns

CFA Level III
#1

When calculating required returns, do you calculate pretax preturns using pre-tax cash flow (CF / (1-t)), or do calculate from the return? [(1+r)(1+i)-1] / (1-t)

Thanks

#2

I had this quesiton before. After doing some quesitons, my conclusiion is:

get the after tax rate then divide by (1-T).

#3

passme,

this is what you do?

1)get Return

2)multiply (1+Return) * (1+ inflation)

3)Divide #2 by (1-T)

#4

im looking at past CFA exams and it looks like they use pre tax CFs.

Boston Mock uses pretax CFs, so i think i will use the CF method

:frowning: :frowning: :frowning: :frowning:

#5

I asked schweser this question. They said it swtiched in the curriculum. In 2009, you find the R/(1-t) then add inlfation.

Now, they switched to (1+R)(1+I)/(1-t). This is what ill be using

#6

Nice Spanishdesk, thanks. That new calculation makes sense.

#7

sure. Im still a bit worried about it sinceit wasnt a definite answer fro schweser, but I guess its better tha nothing…