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Discounting methods and personal taxes

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  • Michael Dempsey

Abstract

We advance models of valuation that incorporate personal taxes. The models are general in allowing for uneven cash flows, changes in debt levels, and changes in the costs of equity and debt. The models are mutually consistent, are consistent with the CAPM, and are consistent with the Modigliani and Miller propositions allowing personal taxes.

Suggested Citation

  • Michael Dempsey, 2019. "Discounting methods and personal taxes," European Financial Management, European Financial Management Association, vol. 25(2), pages 310-324, March.
    • Handle: RePEc:bla:eufman:v:25:y:2019:i:2:p:310-324
    DOI: 10.1111/eufm.12157
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    References listed on IDEAS

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    1. Mike Dempsey & Graham Partington, 2008. "Cost of capital equations under the Australian imputation tax system," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(3), pages 439-460, September.
    2. Cooper, Ian A. & Nyborg, Kjell G., 2006. "The value of tax shields IS equal to the present value of tax shields," Journal of Financial Economics, Elsevier, vol. 81(1), pages 215-225, July.
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    9. Mario Massari & Francesco Roncaglio & Laura Zanetti, 2008. "On the Equivalence between the APV and the wacc Approach in a Growing Leveraged Firm," European Financial Management, European Financial Management Association, vol. 14(1), pages 152-162, January.
    10. Mike Dempsey, 2001. "Valuation and Cost of Capital Formulae with Corporate and Personal Taxes: A Synthesis Using the Dempsey Discounted Dividends Model," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(3-4), pages 357-378.
    11. Fernandez, Pablo, 2004. "The value of tax shields is NOT equal to the present value of tax shields," Journal of Financial Economics, Elsevier, vol. 73(1), pages 145-165, July.
    12. Gordon A. Sick, 1990. "Tax-Adjusted Discount Rates," Management Science, INFORMS, vol. 36(12), pages 1432-1450, December.
    13. Michael Dempsey, 2017. "Stock Markets and Corporate Finance," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number q0094, February.
    14. Mike Dempsey, 2013. "Consistent Cash Flow Valuation with Tax†Deductible Debt: a Clarification," European Financial Management, European Financial Management Association, vol. 19(4), pages 830-836, September.
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    16. Fernandez, Pablo, 2004. "Reply to "The value of tax shields is equal to the present value of tax shields"," IESE Research Papers D/576, IESE Business School.
    17. Mike Dempsey, 2001. "Valuation and Cost of Capital Formulae with Corporate and Personal Taxes: A Synthesis Using the Dempsey Discounted Dividends Model," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(3‐4), pages 357-378, April.
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    Cited by:

    1. Nguyen Kim-Duc & Pham Khanh Nam, 2024. "Consistent valuation: extensions from bankruptcy costs and tax integration with time-varying debt," Review of Quantitative Finance and Accounting, Springer, vol. 62(2), pages 719-754, February.
    2. Leslie Rodríguez-Valencia & Prosper Lamothe-Fernández & David Alaminos, 2023. "The market value of SMEs: a comparative study between private and listed firms in alternative stock markets," Annals of Finance, Springer, vol. 19(1), pages 95-117, March.
    3. Julio Sarmiento & Mehdi Sadeghi & Juan S. Sandoval & Edgardo Cayon, 2021. "The application of proxy methods for estimating the cost of equity for unlisted companies: evidence from listed firms," Review of Quantitative Finance and Accounting, Springer, vol. 57(3), pages 1009-1031, October.

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