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The determination of optimal value of the firm in the short and long run by fine tuning the debt ratio and payout ratio under the new Dutch income tax code

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  • Jan Renaud
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    Abstract

    The optimal value of the firm under the new Dutch income tax reform act in 2002, is reconsidered in this discussion paper. Tax shield of debt-financing and the aggregate tax payments of its joint investors are simultaneously considered. A more-period model is presented for making integrated decisions about the optimal capital structure and dividend policy. By considering the three parties involved: corporation, all individual investors and the Inland Revenue, the financing decision can be solved as a zero sum game. By simultaneously fine-tuning the debt and payout ratio, the model gives the conditions for maximizing firm s value.

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    File URL: http://dspace.library.uu.nl/bitstream/handle/1874/7279/Renaud_Optimalvalue_2004.pdf
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    Bibliographic Info

    Paper provided by Utrecht School of Economics in its series Working Papers with number 04-07.

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    Date of creation: 01 Jan 2004
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    Handle: RePEc:use:tkiwps:0407

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    Keywords: capital structure; debt ratio and payout ratio; Dutch income tax; firm value;

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    1. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411.
    2. Litzenberger, Robert H. & Ramaswamy, Krishna, 1979. "The effect of personal taxes and dividends on capital asset prices : Theory and empirical evidence," Journal of Financial Economics, Elsevier, vol. 7(2), pages 163-195, June.
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