What is the after-tax CAPM, and how does it differ from the standard CAPM in statutory valuations?
an extension of the standard CAPM that layers in the investor's personal tax burden (in some jurisdictions a flat withholding tax on investment income, here ~26.375% including a surcharge).
The investor pays personal taxes on dividends and capital gains — so what matters is the after-personal-tax return, not the pre-tax return.
```
CoE_after_tax = Rf × (1 − tp) + β × ERP × (1 − tp_avg)
```
- tp: personal tax rate
- tp_avg: average tax rate on equity returns
In some jurisdictions, professional valuation standards (independent expert / statutory "objectified" valuations for squeeze-outs and appraisal proceedings) use the after-tax CAPM. In M&A / IB pitches the pre-tax standard CAPM still dominates.
In these statutory valuations, the after-tax CAPM lowers the effective CoE by 1.5–2.5 percentage points, which mechanically produces higher enterprise values.
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If a squeeze-out mandate comes in, know the professional-standard / after-tax-CAPM mechanics — a standard DCF pitch isn't enough. Appraisal-proceeding risk rises if the valuation methodology isn't compliant with the applicable statutory standard.
The after-personal-tax CAPM is a niche technique specific to certain jurisdictions' statutory valuations; the universal concept is taught here, but the founder should decide whether to keep this card given how jurisdiction-specific it is.