How to Calculate NPV with Taxes

Income taxes affect a company's cash flows and should therefore be taken into consideration when calculating the Net Present Value (NPV) of a project. For example, depreciation is a non-cash expense, but it serves as a tax deduction that reduces a company's tax liability by its marginal tax rate. To account for taxes, you can first convert all cash flows to after-tax cash flows and then discount the after-tax cash flows to their present value.—
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