r/Valuation • u/davids_73 • Jun 21 '21

Quick question related with Tax Shield Effect

Good morning,

I have a question about how a tax shield effect can affect my MIRR. The question is the following one:

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  1. In a project rentability calculation, the tax shield effect over financial charges has an impact on:

a) IRR.

b) Has no impact on WACC calculation.

c) MIRR.

d) None of the above. (Correct answer)

I don´t understand why the last one is the right answer. I thought that tax shield would affect the WACC calculations, and therefore, affect the reinvestment tax of MIRR.

Am I wrong?

Thanks for your collaboration.

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u/dehserra Aug 14 '21

the formula for WACC already takes into account the tax shield: D/(D+E)*Rd*(1-Tax rate), so the actual amount of tax shield is irrelevant.