Calculation of Tax Shields Using the Method of Adjusted Present Value

Katarina Valaskova and Vladimir Bakes
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Vladimir Bakes: University of Zilina, Faculty of Operation and Economics of Transport and Communications

Chapter Chapter 40 in Advances in Panel Data Analysis in Applied Economic Research, 2018, pp 553-562 from Springer

Abstract: Abstract A tax shield is a reduction in taxable income for an individual or corporation achieved through claiming allowable deductions such as mortgage interests, medical expenses, charity donations, amortization, and depreciation. These deductions reduce a taxpayer’s taxable income for a given year or defer income taxes into future years. Interest expense is, as opposed to dividends and capital gains, tax deductible; therefore the tax shield (being a benefit of debt financing over equity financing) is an important factor influencing the company’s capital structure choice. The contribution presents basic methods of the tax shield calculations with a practical application of a chosen method in conditions of the Slovak construction company to illustrate and explain the tax shields determination.

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-319-70055-7_40

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DOI: 10.1007/978-3-319-70055-7_40

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