the Weirdness and Absurdity of a Specific theory on the Present Value of the Tax Benefits (PVTB) from Debt Financing

Abstract

In this note, we comment on and discuss the weirdness and absurdity of the idea that Professor Fernandez has argued for. The weirdness or absurdity of a theory does not automatically disqualify a theory; however, perhaps another review of the implications of the theory may have some merit. It seems that the definition of the present value of the tax benefits (PVTB) was revised to accommodate pre-existing ideas; perhaps the new theory is masquerading as a sort of reverse engineering.

Keywords: Financial modeling, Valuation, Weighted Average Cost of Capital (WACC), Free Cash Flow (FCF), Risk of the Tax Shield

JEL Classification: D61, H43, M21, M40, M46, G12, G31, G33