The Tax-Capm with Stochastic Dividends (Das Tax-Capm Mit Stochastischen Dividenden)

Abstract

The IDW (Institut der Wirtschaftsprüfer in Deutschland) proposes to derive the cost of capital, that are required for valuation with the DCF-approach, by using the Tax-CAPM. The original version of the model assumes deterministic dividends. To valuate stochastic cash-flows however, a Tax-CAPM with stochastic dividends is required. The paper deals with integrating stochastic dividends into the Tax-CAPM.

In the first part of the paper, the equilibrium equation of the Tax-CAPM with stochastic dividends is derived for different assumptions concerning the tax system. A former version of an equilibrium equation, that does not model the influence of taxation on the beta-factor appropriately, is corrected. In the second part, an interpretation of the equilibrium equation is given. In the third part, single-period valuation equations are derived.

Note: Downloadable document is in German.

Keywords: CAPM, personal taxes, stochastic dividends, valuation

JEL Classification: G12, G31, G35, H24