Debt policy, corporate taxes, and discount rates

• 成果类型: Article
• 署名作者: Grinblatt, Mark; Liu, Jun
• 署名单位: University of California System; University of California Los Angeles; University of California System; University of California San Diego
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2007.09.009
• 发表日期: 2008
• 页码: 225-254
• 关键词: WACC; Discount rate; tax shields; corporate tax

摘要

This paper applies the standard risk-neutral valuation framework to tax shields generated by dynamic debt policies. We derive a partial differential equation (PDE) for the value of the debt tax shield. For a class of dynamic debt policies that depend on the asset's free cash flows, value, and past performance, we obtain closed-form solutions for the PDE. We also derive the tax-adjusted cost of capital for free cash flows and analyze the conditions under which the weighted average cost of capital is an appropriate discount rate. Finally, we derive closed-form solutions for equity betas, which differ from the formulas that have traditionally been used to lever and unlever equity betas. (C) 2007 Elsevier Inc. All rights reserved.