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Reply to "Comment on the value of tax shields is NOT equal to the present value of tax shields"

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  • Fernandez, Pablo

Abstract

The Comment is thought provoking and helps a lot in rethinking the value of tax shields. However, the conclusion of Fieten, Kruschwitz, Laitenberger, Löffler, Tham, Vélez-Pareja and Wonder (2005) is not correct because, as will be proven below, the main result of Fernández (2004) is correct for several situations. Equation (16a) shows that the value of tax shields depends only upon the nature of the stochastic process of the net increase of debt.

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Bibliographic Info

Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

Volume (Year): 45 (2005)
Issue (Month): 1 (February)
Pages: 188-192

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Handle: RePEc:eee:quaeco:v:45:y:2005:i:1:p:188-192

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Web page: http://www.elsevier.com/locate/inca/620167

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  1. Robert A. Taggart & Jr., 1991. "Consistent valuation and Cost of Capital Expressions With Corporate and Personal Taxes," Financial Management, Financial Management Association, vol. 20(3), Fall.
  2. Gordon A. Sick, 1990. "Tax-Adjusted Discount Rates," Management Science, INFORMS, vol. 36(12), pages 1432-1450, December.
  3. Fernández , Pablo, 2002. "The value of tax shields is not equal to the present value of tax shields," IESE Research Papers D/459, IESE Business School.
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Cited by:
  1. Magni, Carlo Alberto, 2009. "Splitting up value: A critical review of residual income theories," European Journal of Operational Research, Elsevier, vol. 198(1), pages 1-22, October.
  2. Andrea Gamba & Leon Gordon & Carmen Aranda Leon, 2008. "Investment Under Uncertainty, Debt and Taxes," Working Papers wpn08-03, Warwick Business School, Finance Group.

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