Comment on 'The Value of Tax Shields is NOT Equal to the Present Value of Tax Shields'
Ernst & Young, The Netherlands
Grupo Consultor CAV Capital Advisory & Valuation
Free University of Berlin (FUB) - Department of Business and Economics
University of Hannover - Economics and Business Administration Area
Freie Universität Berlin
Duke University - Duke Center for International Development in the Sanford School of Public Policy
Nicholas X. Wonder
Western Washington University - College of Business & Economics
Quarterly Review of Economics and Finance, Vol. 45, February 2005
Fernandez (2004) claims to derive a formula for the valuation of debt tax shields for firms with cash flows that grow perpetually at a constant rate. We show that his formula is incorrect.
Keywords: Present value of tax shield, perpetuities
JEL Classification: G31, G32, H43
Date posted: December 30, 2004