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

27 Pages Posted: 30 Nov 2006

Date Written: November 27, 2006

Abstract

The IDW (Institut der Wirtschaftspr├╝fer 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

Suggested Citation

Mai, Jan Markus, The Tax-Capm with Stochastic Dividends (Das Tax-Capm Mit Stochastischen Dividenden) (November 27, 2006). Available at SSRN: https://ssrn.com/abstract=947507 or http://dx.doi.org/10.2139/ssrn.947507

Jan Markus Mai (Contact Author)

University of Mannheim ( email )

Chair of Business Administration and Taxation
Mannheim, 68131
Germany
+49 (0) 621 181-1717 (Phone)

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