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| Author: | Arzac, E.R. Glosten, L.R. |
| Title: | A reconsideration of tax shield valuation |
| Journal: | European Financial Management
2005 : SEP, VOL. 11:4, p. 453-461 |
| Index terms: | CAPITAL COSTS GEARING Taxation Valuation |
| Language: | eng |
| Abstract: | This paper discusses the valuation problem of a firm that follows a constant leverage ratio L=D/S. To this day the proper discounting of free cash flows and the computation of WACC are often misunderstood. A general result on the value of tax shields is derived, and the correct value of tax shields for perpetuities is obtained. Also the correct valuation formulas for arbitrary cash flows under a constant leverage financial policy are presented. |
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