The value of tax shields and the risk of the net increase of debt


Abstract The value of tax shields depends upon the nature of the stochastic process of the net increase of debt, and does not depend upon the nature of the stochastic process of the free cash flow. The value of tax shields in a world with no leverage cost is the tax rate times the debt plus the tax rate times the present value of the net increases of debt. This…
From PricewaterhouseCoopers Professor of Corporate Finance University of Navarra - IESE Business School, Spain
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