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The Determination of Optimal Value of the Firm in the Short and Long Run by Fine Tuning the Debt Ratio and Payout Ratio under the New Dutch Income Tax Code

  • J.E.O. Renaud
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    The optimal value of the firm under the new Dutch income tax reform act in 2002, is reconsidered in this discussion paper. Tax shield of debt-financing and the aggregate tax payments of its joint investors are simultaneously considered. A more-period model is presented for making integrated decisions about the optimal capital structure and dividend policy. By considering the three parties involved: corporation, all individual investors and the Inland Revenue, the financing decision can be solved as a zero sum game. By simultaneously fine-tuning the debt and payout ratio, the model gives the conditions for maximizing firm’s value.

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    File URL: http://dspace.library.uu.nl/bitstream/handle/1874/309385/2004.pdf
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    Paper provided by Utrecht School of Economics in its series Working Papers with number 04-07.

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    Date of creation: Jan 2004
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    Handle: RePEc:use:tkiwps:0407
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    1. Litzenberger, Robert H. & Ramaswamy, Krishna, 1979. "The effect of personal taxes and dividends on capital asset prices : Theory and empirical evidence," Journal of Financial Economics, Elsevier, vol. 7(2), pages 163-195, June.
    2. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411.
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