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BFO Theory with Variable Profit in Case of Advance Payments of Tax on Profit

In: The Brusov–Filatova–Orekhova Theory of Capital Structure

Author

Listed:
  • Peter Brusov

    (Financial University under the Government of Russian Federation)

  • Tatiana Filatova

    (Financial University under the Government of Russian Federation)

  • Natali Orekhova

    (Financial University under the Government of Russian Federation)

Abstract

The Brusov–Filatova–Orekhova (BFO) theory is generalized for the simultaneous account of variable company profit and advance tax on income payments. The generalized BFO formula for the WACC has been derived. The dependence of WACC, discount rate, WACC-g (here g is growth rate), company capitalization, V, the equity cost, ke, on leverage L at various values of g, on debt cost, kd, and on age of the company, n, is studied. It is shown that WACC is no longer a discount rate. This role passes to WACC-g, which decreases with g, while the company’s value increases with g. The tilt of curve k(L) growths with g. It is found that at the growth rate g

Suggested Citation

  • Peter Brusov & Tatiana Filatova & Natali Orekhova, 2023. "BFO Theory with Variable Profit in Case of Advance Payments of Tax on Profit," Springer Books, in: The Brusov–Filatova–Orekhova Theory of Capital Structure, chapter 0, pages 291-316, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-27929-4_15
    DOI: 10.1007/978-3-031-27929-4_15
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