Hi Britt,
Great question - tax shields come up quite a bit in CMA Part 2, especially in Capital Budgeting (Section D).
Here's a simple way to think about it:
Include the tax shield when:
• You're calculating after-tax cash flows in an NPV or IRR problem
• The asset is depreciable and you need to account for the depreciation tax shield (Depreciation x Tax Rate)
• There's debt involved - interest tax shield = Interest x Tax Rate
Do NOT include the tax shield when:
• The question specifically asks for pre-tax cash flows
• The payback period method is used in its basic form (payback doesn't adjust for taxes unless stated)
• The entity is tax-exempt
For payback period specifically - the standard payback formula uses after-tax operating cash flows, but it does NOT directly include a separate tax shield calculation unless the question breaks it out explicitly.
I had made some structured personal notes on Capital Budgeting during my Part 2 prep that cover exactly these kinds of concepts. They are my own personal notes - not official IMA or Becker material.
Hope this clears it up, Britt. Keep going!
– Tushar
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Tushar Sahu
Student
https://tusharfinance.gumroad.com/Kumhari CT
India
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Original Message:
Sent: 02-03-2026 12:26 PM
From: Britt Leussink
Subject: CMA Part 2: tax shields
Hi! I'm wondering if someone can help me understand when I would include the tax shield in calculations and when I would not. For example to calculate payback period. THanks!
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Britt Leussink
Analyst
Oslo
Norway
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