Introduction to Corporate Finance - Coursera
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  • Introduction
  • Corporate Finance - An Introduction
  • Time Value of Money
    • Discounting
    • Compounding
    • Annuity
    • Growing Annuity
    • Perpetuity
    • Growing Perpetuity
    • Taxes
    • Inflation
  • Interest Rates
    • APR and EAR
    • Term Structure
  • Discounted Cash Flow
    • Decision Making
    • Free Cash Flow
    • Forecast Drivers
    • Forecasting Free Cash Flow
    • Sensitivity Analysis
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  1. Time Value of Money

Taxes

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Last updated 4 years ago

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This section discusses the impact of tazes on the time value of money.

Usually, interest is taxable, so taxes reduce the rate of return (R) on our investment. They reduce the funds available for withdrawal.

Instead of using R in our formulae, we must now use RtR_tRt​ to account for the impact of taxes.

If trt_rtr​ is the tax rate on interest,

Rt=R∗(1−tr)R_t = R*(1-t_r)Rt​=R∗(1−tr​)