Impact of Taxes on Multiperiod Financial Discount Rates
Fulbright Economics Teaching Program Working Paper
61 Pages Posted: 10 Mar 2000
Date Written: December 1999
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
Suggested Citation: Suggested Citation