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Valuation With Or Without Personal Income Taxes?


  • Frank Richter


This paper reviews different schools of thought on the question of if and how personal taxes should be incorporated into the valuation of companies or projects. The paper shows under which conditions the risk-neutral valuation approach yields the same result as the Tax-CAPM. Special cases are analyzed that imply irrelevance of personal taxes. In addition, empirical questions are addressed, such as how to determine the expected market rate of return after personal taxes. For this purpose current market prices are used in combination with cash-flow forecasts of financial analysts. Finally, a view is presented on the precision required to estimate the personal tax rate. If both the investment opportunity and its alternative are similarly tax affected, then relative values should not change too much as a function of the tax rate. However, common sensitivity analyses indicate the opposite.

Suggested Citation

  • Frank Richter, 2004. "Valuation With Or Without Personal Income Taxes?," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 56(1), pages 20-45, January.
  • Handle: RePEc:sbr:abstra:v:56:y:2004:i:1:p:20-45

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    Cited by:

    1. Ronald W. Spahr & Pankaj K. Jain & Fariz Huseynov & Bhavik Rajesh Parikh, 2012. "Tax policy and macro-finance in a competitive global economy where government is considered as firms' third financial stakeholder," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 14(1/2), pages 30-66.

    More about this item


    Asset Pricing Theory; Taxes; Valuation.;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill


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