Claudio Abbado Group (CAG) has certain tax assets that will be realized in five years. The tax assets amount to 5 million Swiss francs. The applicable tax rate is 30 percent. CAG's risk premium is 5 percent while the risk-free rate is 3 percent. What is the value of CAG's tax assets today?

Question

Quizplus · Accepted Answer

The value of the tax assets today is calculated by discounting the future tax savings (5 million Swiss francs * 30% = 1.5 million Swiss francs) back to the present value using the discount rate, which is the sum of the risk-free rate and the risk premium (3% + 5% = 8%). The present value is 1.5 million / (1 + 0.08)^5 = 1,020,875 Swiss francs.

Claudio Abbado Group (CAG) Has Certain Tax Assets That Will