If net cash flows have been estimated on an after-tax basis,then:
A)the opportunity cost of capital is not appropriate.
B)they should be discounted by the after-tax required rate of return.
C)they should be discounted by the before-tax required rate of return.
D)tax cash flows should be added back and net cash flows should be discounted by the before-tax required rate of return.

Question

Quizplus · Accepted Answer

If net cash flows have been estimated on an after-tax basis, they should be discounted by the after-tax required rate of return. This is because the after-tax cash flows reflect the actual cash inflows and outflows received and paid by the firm after accounting for taxes. Therefore, the after-tax required rate of return is the appropriate discount rate to use in order to account for the time value of money and the risk associated with the investment.

If Net Cash Flows Have Been Estimated on an After-Tax