Abstract

http://ssrn.com/abstract=1725527
 
 

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Analytical Solution for Optimal Capital Structure in Perpetuities


Joseph Tham


Duke University - Duke Center for International Development in the Sanford School of Public Policy

Ignacio Velez-Pareja


Master Consultores

James W. Kolari


Texas A&M University - Department of Finance

December 14, 2010


Abstract:     
We derive and present the formula for optimal debt under the assumption that tax shields are discounted at the cost of levered equity, Ke and cash flows are on perpetuity. The formulation is consistent and is derived from basic financial principles. This formulation is valid for non-growing perpetuities.

Number of Pages in PDF File: 7

Keywords: Firm valuation, optimal capital structure, discount rate for tax shields

JEL Classification: M21, M40, M46, M41, G12, G31, J33

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Date posted: December 15, 2010 ; Last revised: October 19, 2011

Suggested Citation

Tham, Joseph and Velez-Pareja, Ignacio and Kolari, James W., Analytical Solution for Optimal Capital Structure in Perpetuities (December 14, 2010). Available at SSRN: http://ssrn.com/abstract=1725527 or http://dx.doi.org/10.2139/ssrn.1725527

Contact Information

Joseph Tham (Contact Author)
Duke University - Duke Center for International Development in the Sanford School of Public Policy ( email )
Box 90312
302, Towerview Dr, Rubenstein Hall, Room 272
Durham, NC 27708
United States
919-613-9234 (Phone)
919-681-0831 (Fax)
HOME PAGE: http://fds.duke.edu/db/Sanford/faculty/thamjx
Ignacio Velez-Pareja
Master Consultores ( email )
Ave Miramar # 18-93 Apt 6A
Cartagena
Colombia
+575 690 9972 (Phone)
HOME PAGE: http://cashflow88.com/decisiones/decisiones.html
James W. Kolari
Texas A&M University (TAMU) - Department of Finance ( email )
351R Wehner
Department of Finance
College Station, TX 77843-4218
United States
979-845-4803 (Phone)
979-845-3884 (Fax)

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