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Capital Budgeting with Taxes under Uncertainty and Irreversibility / Investitionsplanung mit Steuern bei Unsicherheit und Irreversibilität

  • Niemann Rainer

    ()

    (University of Tübingen, Department of Economics, Mohlstr. 36, D-72074 Tübingen, Germany)

  • Sureth Caren

    ()

    (University of Paderborn, Department of Business Administration and Economics, Warburger Str. 100, D-33098 Paderborn, Germany)

Registered author(s):

    This article investigates the derivation of post-tax investment rules and neutral tax systems under risk neutrality and risk aversion for irreversible investment projects. Integrating taxes into real option theory, it can be shown that the possible approaches dynamic programming and contingent claims analysis yield identical investment rules under risk neutrality. Under risk aversion, contingent claims analysis requires a sophisticated capital market model which is still missing. In contrast, dynamic programming as an individual approach permits explicit investment rules at least in the pre-tax case. After taxes, both approaches fail to reach general solutions. Nevertheless, we succeed in proving neutral tax systems for the first time under risk aversion in the real option context using dynamic programming.

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    File URL: http://www.degruyter.com/view/j/jbnst.2005.225.issue-1/jbnst-2005-0106/jbnst-2005-0106.xml?format=INT
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    Article provided by De Gruyter in its journal Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik).

    Volume (Year): 225 (2005)
    Issue (Month): 1 (February)
    Pages: 77-95

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    Handle: RePEc:jns:jbstat:v:225:y:2005:i:1:p:77-95
    Contact details of provider: Web page: http://www.degruyter.com

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