107,943 research outputs found
Reply to "Comment on the value of tax shields is NOT equal to the present value of tax shields"
No full textThe Comment is thought provoking and helps a lot in rethinking the value of tax shields. However, the conclusion of Fieten, Kruschwitz, Laitenberger, Löffler, Tham, Vélez-Pareja and Wonder (2005) is not correct because, as will be proven below, the main result of Fernández (2004) is correct for several situations. Equation (16a) shows that the value of tax shields depends only upon the nature of the stochastic process of the net increase of debt.Value of tax shields; present value of the net increases of debt;
Reply to "The value of tax shields is equal to the present value of tax shields"
No full textIn a recent paper, Cooper and Nyborg (2004) argue that the results of Fernández (2004) are wrong because value-additivity is violated and because "Fernández paper comes from mixing the Miles-Ezzell leverage policy with the Miller-Modigliani leverage adjustment." Cooper and Nyborg's paper is thought-provoking and helps a lot in rethinking the value of tax shields. However, their conclusions are not correct because, as will be proven below, the main result of Fernández (2004) is correct for several situations. An evident error of Cooper and Nyborg (2004) is that their formulae (4), (6), (8) and (11), which they attribute to Miles and Ezzell (1980), correspond to Harris and Pringle (1985) and Ruback (2002). In addition, their formulae (3) and (5) are not general: they are valid only for perpetuities without growth. In this paper I also show that the value of tax shields depends only upon the nature of the stochastic process of the net increase of debt.Value of tax shields; Present value of the net increases of debt; unlevered beta; levered beta; leverage cost;
Green T. Shields correspondence with John T. Wilder, 1863 October 7
No full textLetter from Lieutenant Shields to Colonel Wilder regarding travel arrangements from Indiana back to Tennessee
Green T. Shields correspondence with John T. Wilder, 1863 October 7
No full textLetter from Lieutenant Shields to Colonel Wilder regarding travel arrangements from Indiana back to Tennessee
The value of tax shields depends only on the net increases of debt
No full textThe value of tax shields depends only on the nature of the stochastic process of the net increases of debt. The value of tax shields in a world with no leverage cost is the tax rate times the current debt plus the present value of the net increases of debt. By applying this formula to specific situations, we show that Modigliani-Miller (1963) should be used when the company has a preset amount of debt, Fernández (2004) when the company maintains a fixed book-value leverage ratio, and Miles-Ezzell (1980) when the company maintains a fixed market-value leverage ratio.Value of tax shields; present value of the net increases of debt; required return to equity;
The value of tax shields with a fixed book-value leverage ratio
No full textThe value of tax shields depends only on the nature of the stochastic process of the net increases of debt. The value of tax shields in a world with no leverage cost is the tax rate times the current debt plus the present value of the net increases of debt. We develop valuation formulae for a company that maintains a fixed book-value leverage ratio and show that it is more realistic than to assume, as Miles-Ezzell (1980) do, a fixed market-value leverage ratio. We also show that Miles-Ezzell assume that the increase of debt is proportional to the increase of the free cash flows.Value of tax shields; present value of the net increases of debt; required return to equity;
Value of tax shields and the risk of the net increase of debt, The. Year 2004
No full textThe value of tax shields depends on the nature of the stochastic process of the net increase of debt; it does not depend on the nature of the stochastic process of the free cash flow. The value of tax shields in a world with no leverage cost is the tax rate times the debt, plus the tax rate times the present value of the net increases of debt. This expression is the difference between the present values of two different cash flows, each with its own risk: the present value of taxes for the unlevered company and the present value of taxes for the levered company. For perpetual debt, the value of tax shields is the debt times the tax rate. When the company is expected to repay the current debt without issuing new debt, the value of tax shields is the present value of the interest times the tax rate, discounted at the required return to debt.value tax shields; present value net increases debt; required return equity; leverage cost; unlevered beta; levered beta;
Letter, James Shields to T. [A.?] Cherry, August 20, 1859
No full textThis handwritten letter, dated August 20, 1859 is from James Shields to T. [A.?} Cherry. The script is difficult to read but mentions that he is hardly ever at home, and compares Minnesota to Washington in some way. The paper is discolored in several places. This note was found tipped into volume one of Abraham Lincoln : A History by John G. Nicolay and John Hay.https://scholarsjunction.msstate.edu/fvw-manuscripts-nicolay-and-hay-documents/1003/thumbnail.jp
Levered and unlevered Beta
No full textWe prove that in a world without leverage cost the relationship between the levered beta ( L) and the unlevered beta ( u) is the No-costs-of-leverage formula: L = u + ( u - d) D (1 - T) / E. We also analyze 6 alternative valuation theories proposed in the literature to estimate the relationship between the levered beta and the unlevered beta (Harris and Pringle (1985), Modigliani and Miller (1963), Damodaran (1994), Myers (1974), Miles and Ezzell (1980), and practitioners) and prove that all provide inconsistent results.unleveredbeta; levered beta; asset beta; value of tax shields; required return to equity; leverage cost;
Firm valuation: tax shields & discount rates
No full textThis paper proposes a new discounted cash flows’ valuation setup, and derives a general expression for the tax shields’ discount rate. This setup applies to any debt policy and any cash flow pattern. It only requires the equality at any time between the assets side and the liabilities side of the market value balance sheet, which has been introduced by Farber, Gillet and Szafarz (2006). This concept is extensively developed in the paper. This model encompasses all the usual setups that consider a fixed discount rate for the tax shields and require a fixed level of debt or a fixed leverage ratio, in particular Modigliani & Miller (1963) and Harris & Pringle (1985). It proposes an endogenized and integrated approach and modelizes the different market value discount rates as functions of both their relevant leverage ratio and the operating profitability of the firm. Among these rates are the cost of debt and the tax shields’ discount rate, which are usually assume constant. In this model, all the discount rates are likely to vary as soon as perpetuity cases are not considered. This setup introduces a new rate for the cost of levered equity without tax shields and develops the relation between the present value of tax shields and the market value of equity since debt tax shields entirely flow to equity. It only requires the risk free rate and the unlevered cost of capital as inputs but not the capital structure of the firm, as it tackles the circularity problem by considering an iterative approach. This fully dynamic model yields both theoretical and economic sensible results, and allows straightforward applications. It apparently solves the discrepancies of the usual setups and hopefully paves the way for further research.Discounted Cash Flow; Tax Shields; Discount Rates; Cost of Equity; Cost of Capital; Tax Shield Risk; Adjusted Present Value; Equity Cash Flow
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