The classical tax system, imputation tax and capital budgeting

A. Buckley

The European Journal of Finance, 1995, vol. 1, issue 2, 113-128

Abstract: Differences in the taxation systems in Britain, France, and some other European countries (which use the imputation system) compared with the USA and the Netherlands, among others (which use the classical tax system), mean that the cost of equity capital should be specified, using a capital asset pricing model methodology, in different ways. Under the imputation system its value should be net of personal taxes; under the classical tax system, it should be gross of personal taxes. Similarly the value of the tax shield on debt for input into adjusted present value calculations differs, being significantly greater under the classical tax system. Formulae are set out to enable the calculation of the magnitude of the tax shield readily to be undertaken.

Keywords: investment; taxation; value; project; appraisal (search for similar items in EconPapers)
Date: 1995
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Citations: View citations in EconPapers (1)

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DOI: 10.1080/13518479500000012

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