medium · Investment Banking
In the context of a DCF, why is 'Taxes on EBIT' used instead of actual taxes paid?
- To avoid the added modeling complexity of calculating deferred tax assets and liabilities each period.
- Because the IRS legally mandates the use of EBIT for all valuation-related corporate tax return filings.
- Because EBIT is considered by analysts to be a more reliable measure of true operating cash flow than pre-tax income.
- To calculate cash flows on an unlevered basis, as if the company had no debt and thus no interest tax shield.
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