Much Ado About Nothing: A Non-Technical Comment on the Present Value of the Tax Shield (Pvts)

Working Paper No. 23

8 Pages Posted: 2 Dec 2002

See all articles by Joseph Tham

Joseph Tham

Duke University - Duke Center for International Development in the Sanford School of Public Policy; Academy of Public Administration under the President of the Republic of Kazakhstan

Ignacio Velez-Pareja

Grupo Consultor CAV Capital Advisory & Valuation

Date Written: October 27, 2002

Abstract

There are two ways to define the present value of the tax shield (PVTS). First, the PVTS is simply the tax shield (TS), discounted by the appropriate discount rate for the tax shield. Second, the PVTS is the difference in the taxes paid by the unlevered and levered firms. In his recent book, Fernandez (2002) claims that these definitions are not equivalent. It can be shown that both of these definitions are equivalent. Using non-technical language, we briefly comment on the reasons why one may mistakenly believe that there is non-equivalence between the two definitions

Keywords: risk of the tax shield, present value of tax shield

JEL Classification: D61, G31, H43

Suggested Citation

Tham, Joseph and Velez-Pareja, Ignacio, Much Ado About Nothing: A Non-Technical Comment on the Present Value of the Tax Shield (Pvts) (October 27, 2002). Working Paper No. 23. Available at SSRN: https://ssrn.com/abstract=345660 or http://dx.doi.org/10.2139/ssrn.345660

Joseph Tham (Contact Author)

Duke University - Duke Center for International Development in the Sanford School of Public Policy ( email )

Box 90312
302, Towerview Dr, Rubenstein Hall, Room 272
Durham, NC 27708
United States
919-613-9234 (Phone)
919-681-0831 (Fax)

HOME PAGE: http://fds.duke.edu/db/Sanford/faculty/thamjx

Academy of Public Administration under the President of the Republic of Kazakhstan ( email )

Abay Street, 33a
Astana
Kazakhstan
+7 8 7172753422 (Phone)

Ignacio Velez-Pareja

Grupo Consultor CAV Capital Advisory & Valuation ( email )

Ave Miramar # 18-93 Apt 6A
Cartagena
Colombia
+573112333074 (Phone)

HOME PAGE: http://cashflow88.com/decisiones/decisiones.html

Register to save articles to
your library

Register

Paper statistics

Downloads
296
Abstract Views
3,159
rank
103,142
PlumX Metrics