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Calculation of Tax Shields Using the Method of Adjusted Present Value

In: Advances in Panel Data Analysis in Applied Economic Research

Author

Listed:
  • Katarina Valaskova

    (University of Zilina, Faculty of Operation and Economics of Transport and Communications)

  • Vladimir Bakes

    (University of Zilina, Faculty of Operation and Economics of Transport and Communications)

Abstract

A tax shield is a reduction in taxable income for an individual or corporation achieved through claiming allowable deductions such as mortgage interests, medical expenses, charity donations, amortization, and depreciation. These deductions reduce a taxpayer’s taxable income for a given year or defer income taxes into future years. Interest expense is, as opposed to dividends and capital gains, tax deductible; therefore the tax shield (being a benefit of debt financing over equity financing) is an important factor influencing the company’s capital structure choice. The contribution presents basic methods of the tax shield calculations with a practical application of a chosen method in conditions of the Slovak construction company to illustrate and explain the tax shields determination.

Suggested Citation

  • Katarina Valaskova & Vladimir Bakes, 2018. "Calculation of Tax Shields Using the Method of Adjusted Present Value," Springer Proceedings in Business and Economics, in: Nicholas Tsounis & Aspasia Vlachvei (ed.), Advances in Panel Data Analysis in Applied Economic Research, chapter 0, pages 553-562, Springer.
    • Handle: RePEc:spr:prbchp:978-3-319-70055-7_40
    DOI: 10.1007/978-3-319-70055-7_40
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