The after-tax MARR is the Minimum acceptable rate of return in the after-tax economic world — the hurdle a project must clear when both cash flows and the discount rate are taken net of corporate income tax.
The approximate relationship to the before-tax MARR is
where is the marginal corporate tax rate. The reasoning: returns get taxed before they’re enjoyed, so a 12% before-tax return becomes about after-tax for a corporation in the 27% bracket.
Why two MARRs? Because there are two parallel ways to do project analysis:
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Before-tax analysis. Use before-tax cash flows (no applied to operating profits, no CCA tax shields). Discount at the before-tax MARR. Get PW.
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After-tax analysis. Use after-tax cash flows (multiply operating profits by , include all CCA tax shields via CTF and CSF). Discount at the after-tax MARR. Get PW.
Both approaches should agree (up to the approximation in the rate conversion) on whether a project clears the bar. But for comparison among alternatives, they can disagree if the alternatives have meaningfully different CCA profiles — an asset with a high CCA rate gets a bigger tax shield, which only shows up in the after-tax analysis. The after-tax analysis is the more accurate framework when taxes are material.
Pitfall. Don’t apply both adjustments at once. If you’ve taken the cash flows down by , you should not also use the before-tax MARR — that double-counts the tax effect and gives the wrong answer. The two approaches are parallel, not stackable.
In practice, large firms publish an internal MARR table that already specifies after-tax for use with after-tax analyses, and the convention is clear. In academic exercises, “MARR” without qualifier usually means before-tax in problems that don’t mention tax, and after-tax in problems that do.
For the broader tax framework see Corporate income tax, Capital cost allowance, Capital tax factor, Capital salvage factor. For the underlying hurdle-rate concept see Minimum acceptable rate of return.