Comment on 'The Value of Tax Shields is NOT Equal to the Present Value of Tax Shields'

Posted: 30 Dec 2004  

Paul Fieten

Ernst & Young, The Netherlands

Ignacio Velez-Pareja

Grupo Consultor CAV Capital Advisory & Valuation

Lutz Kruschwitz

Free University of Berlin (FUB) - Department of Business and Economics

Jörg Laitenberger

University of Hannover - Economics and Business Administration Area

Andreas Loeffler

Freie Universität Berlin

Joseph Tham

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

Nicholas X. Wonder

Western Washington University - College of Business & Economics

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Abstract

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

Suggested Citation

Fieten, Paul and Velez-Pareja, Ignacio and Kruschwitz, Lutz and Laitenberger, Jörg and Loeffler, Andreas and Tham, Joseph and Wonder, Nicholas X., Comment on 'The Value of Tax Shields is NOT Equal to the Present Value of Tax Shields'. Quarterly Review of Economics and Finance, Vol. 45, February 2005. Available at SSRN: https://ssrn.com/abstract=636901

Paul Fieten (Contact Author)

Ernst & Young, The Netherlands ( email )

Postbus 488
Rotterdam, 3000 AL
Netherlands

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

Lutz Kruschwitz

Free University of Berlin (FUB) - Department of Business and Economics ( email )

Boltzmannstrasse 20
D-14195 Berlin, 14195
Germany
+49 30 838-54631 (Phone)
+49 30 838-54468 (Fax)

Jörg Laitenberger

University of Hannover - Economics and Business Administration Area ( email )

Koenigsworther Platz 1
30167 Hannover
Germany
+49-511-7624668 (Phone)
+49-511-7624670 (Fax)

Andreas Loeffler

Freie Universität Berlin ( email )

Boltzmannstr. 20
Berlin, 14195
Germany

HOME PAGE: http://www.andreasloeffler.de

Joseph Tham

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

Nicholas X. Wonder

Western Washington University - College of Business & Economics ( email )

Department of Finance and Marketing
Bellingham, WA 98225-9071

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