Reply to Comment on the Value of Tax Shields is NOT Equal to the Present Value of Tax Shields

Fernandez, Pablo

doi:10.2139/ssrn.646781

Abstract

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Reply to Comment on the Value of Tax Shields is NOT Equal to the Present Value of Tax Shields

Pablo Fernandez

University of Navarra - IESE Business School

June 22, 2004

Abstract:
The Comment is thought provoking and helps a lot in rethinking the value of tax shields. However, the conclusion of Fieten, Kruschwitz, Laitenberger, Loffler, Tham, Velez-Pareja and Wonder (2005) is not correct because, as will be proven below, the main result of Fernandez (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.

Number of Pages in PDF File: 5

Keywords: Value of tax shields, Required return to equity, leverage cost, unlevered beta, levered beta

JEL Classification: G12, G31, G32

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Date posted: January 11, 2005

Suggested Citation

Fernandez, Pablo, Reply to Comment on the Value of Tax Shields is NOT Equal to the Present Value of Tax Shields (June 22, 2004). Available at SSRN: http://ssrn.com/abstract=646781 or http://dx.doi.org/10.2139/ssrn.646781

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Pablo Fernandez (Contact Author)

University of Navarra - IESE Business School ( email )

Camino del Cerro del Aguila 3
28023 Madrid
Spain
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)

HOME PAGE: http://web.iese.edu/PabloFernandez/