The value of tax shields is the difference of two present values with different risk


ABSTRACT We show that the value of tax shields is the difference between the present values of two different cash flows with their own risk: the present value of taxes for the unlevered company and the present value of taxes for the levered company. For perpetuities without costs of leverage, the value of tax shields is equal to the tax rate times the value of debt. For any company, we…
From PricewaterhouseCoopers Professor of Corporate Finance University of Navarra - IESE Business School, Spain
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