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Comment on 'the Value of Tax Shields is Not Equal to the Present Value of Tax Shields', Including an Arbitrage OpportunityNicholas X. WonderWestern Washington University - College of Business & Economics Paul FietenErnst & Young, The Netherlands Lutz KruschwitzFree University of Berlin (FUB) - Department of Business and Economics Jörg LaitenbergerUniversity of Hannover - Economics and Business Administration Area Andreas LoefflerFreie Universität Berlin Joseph ThamDuke University - Duke Center for International Development in the Sanford School of Public Policy Ignacio Velez-ParejaMaster Consultores December 22, 2003 The Quarterly Review of Economics and Finance, Vol. 45, No. 1, pp. 188-192, February 2005 Abstract: In a forthcoming paper, Fernandez (2002) claims to derive a formula for the valuation of debt tax shields for firms with cash flows that grow perpetually at a constant rate. We show that his formula is incorrect and provide an example where his valuation would admit arbitrage.
Number of Pages in PDF File: 8 Keywords: Present value of tax shield, perpetuities JEL Classification: G31, G32, H43 Accepted Paper SeriesDate posted: December 31, 2003 ; Last revised: April 1, 2009Suggested CitationContact Information
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