Cost of Capital with Levered Cost of Equity as the Risk of Tax Shields
We present the derivation of cost of capital under the assumption of risky tax shields discounted with the cost of levered equity. We show that the formulation is consistent and is derived from basic financial principles. This formulation is valid for finite cash flows and non growing perpetuities. In addition, it can be calculated without the circularity between value and discount rate.
|Date of creation:||22 Aug 2010|
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