Impact of Taxes on Multiperiod Financial Discount Rates

Abstract

This paper discusses the calculation of financial discount rates in the presence of taxes and inflation. With respect to financing, there are two options. The debt-equity ratio may be constant or variable over the life of the project. If it is assumed that the debt-equity ratio is constant, then the loan schedule should be adjusted to ensure that the constant debt-equity ratio is maintained. On the other hand, if the debt-equity ratio changes over the life of the project, then the return to equity in each period should take into account the debt-equity ratio in that period.

JEL Classification: D61, G31, H43