# Tag Info

So this is what he has done: Take pre-tax investment of $1. At 25% tax rate, 0.75 goes into the retirement account, which grows at 15% for 30 years:$ 0.75*1.15^{30}=50 $Then he applies the formula he has given just above the snapshot to compute the incremental amount:$0.25*(1-0.25)*\left(1.15^{30}-1\right)=0.25×0.75×(1.15^{30}−1)=12$And adding ... 1 In fact, the WACC is misinforming us; it is neither a cost nor a required return but a weighted average of a cost and a required return. The corporate finance community promotes the WACC as a comprehensive cost of capital to guide investment decisions. This practice is wrong. Suppose that the risk-free rate is 5% (simple rate), and the required rate of ... 1 There may be two points you are missing: You are allowed to apply the CAPM to calculate the cost of equity$R_e$. However, one of the CAPM assumptions is, that taxes are not taken into account into the model. The unlevered WACC gives a theoretical solution under the assumption that there is no debt at all. In conventional WACC, the tax part$t\$ only impacts ...