Reference no: EM133057035

Recall that we are always concerned with after-tax cash flows. Since we are determining the cost of capital and that that measure will be the discount rate appropriate to those cash flows as discussed previously, we need the pretax rate, but more importantly the after-tax rate. Also, interest paid by a corporation is a tax-deductible cost item, and that payments to stockholders by way of dividends are not and that capital gains are capped at 15%. Thus, in determining an after-tax discount rate, we need to distinguish between the pre-tax' and after-tax cost' capital structure. Explain your point