medium · Investment Banking valuation-core

In the context of a DCF, why is 'Taxes on EBIT' used instead of actual taxes paid?

1. To avoid the added modeling complexity of calculating deferred tax assets and liabilities each period.
2. Because the IRS legally mandates the use of EBIT for all valuation-related corporate tax return filings.
3. Because EBIT is considered by analysts to be a more reliable measure of true operating cash flow than pre-tax income.
4. 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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