Until now, the approaches to valuing S corporations have focused on two main aspects: differences in tax rates for subchapter S and C corporations and the appropriate discount rates to use in valuing them. The problem lies with the fact that traditional earnings methods of valuation, including discounted cash flow, are faced with the dilemma of having a “pretax,” that is, untaxed, cash flow passed through to the S corporation shareholder that should be discounted at the post-corporate, but preshareholder, tax discount rate. Empirical evidence is critically reviewed herein.
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