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BFO Theory with Variable Profit: Two Types of Payments of Tax on Profit: Advanced Payments and at the Ends of Periods

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

Two modifications of the modern theory of the capital cost and capital structure—the theory of Brusov–Filatova–Orekhova (BFO) with variable income are considered: (1) with the payment of income tax at the end of periods and (2) with advance payments of income tax. BFO formulas for the weighted average cost of capital, WACC, for company value, V, were derived for these two cases and within these formulas, a comprehensive analysis of the dependence of WACC, of discount rate, WACC–g (here g is the growth rate), company capitalization, V, the equity cost, ke, on the leverage level L at different values of the growth rate, g, at different values of the cost of debt capital, kd, and at different values of company age, n was carried out. The results for cases (1) and (2) are compared, which allows us to conclude that case (2) is always preferable for both the company and the regulator. This allows for developing recommendations for both parties to expand the practice of advance payments of income tax.

Suggested Citation

  • Peter Brusov & Tatiana Filatova & Natali Orekhova, 2023. "BFO Theory with Variable Profit: Two Types of Payments of Tax on Profit: Advanced Payments and at the Ends of Periods," Springer Books, in: The Brusov–Filatova–Orekhova Theory of Capital Structure, chapter 0, pages 317-342, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-27929-4_16
    DOI: 10.1007/978-3-031-27929-4_16
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