Trouble with pretax discount rates

BVWireIssue #143-1
August 6, 2014

At the recent NACVA conference in Las Vegas, Roger Grabowski (Duff & Phelps) and Shannon Pratt (Shannon Pratt Valuations Inc.) talked about the problems they see in converting a discount rate developed from after-tax returns to a pretax equivalent discount rate.

Common error: “Notable experts got it wrong,” says Grabowski. So the authors added a chapter on the topic in the newly released fifth edition of their landmark book, Cost of Capital, Applications and Examples. “It’s a very short but very important chapter,” says Pratt.

Extra: The September issue of Business Valuation Update will include a review of the book written by Ted Israel, who is director of the Forensic and Valuation Services division of Eckhoff Accountancy Corp.

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