WACC in my mind is effectively a post-tax measure: $$\text{WACC} = \frac{E}{V} k_e+\frac{D}{V}k_d(1-t)$$ In this case should cash-flows, in particular loan cash-flows be adjusted for tax as well? Imagine a scenario where a company buys a portfolio of loans. The company is trying to estimate whether to buy the portfolio and for how much. Market approach is not feasible as these transactions do not have publicly available prices, the portfolio is very specific. Question is whether the cash-flows, interest cash flows specifically should be adjusted for the corporate tax rate $t$ by adjusting the total interest payment received $I$ by $(1-t)$ reflecting the fact that the company will have to pay taxes on interest received.

  • $\begingroup$ When you pay taxes it is cash paid to the government isn't it? $\endgroup$ – Alex C Sep 29 '16 at 0:27

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