A model for risky cash flows and tax shields

Howard Qi, Sheen Liu and Dean Johnson ()

Journal of Economics and Finance, 2012, vol. 36, issue 4, 868-881

Abstract: We extend the WACC and APV frameworks by incorporating risky cash flows and the potential loss of tax shields. A closed-form solution is derived for the expected effective tax shields. Our model explains the under-leverage puzzle, and provides better estimates for the required equity return through the improved WACC and APV formulae. It offers four empirically testable predictions. Copyright Springer Science+Business Media, LLC 2012

Keywords: Risky Cash Flows; Tax Shields; WACC; APV; G31; G32; G33 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s12197-010-9162-7

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