Analytical Solution for Optimal Capital Structure in Perpetuities

Joseph Tham (), Ignacio Velez-Pareja () and James Kolari ()

No 7857, Proyecciones Financieras y Valoración from Master Consultores

Abstract: We derive and present the formula for optimal debt under the assumption that tax shields are discounted at the cost of levered equity, Ke and cash flows are on perpetuity. The formulation is consistent and is derived from basic financial principles. This formulation is valid for non-growing perpetuities.

Keywords: Firm valuation; optimal capital structure; discount rate for tax shields (search for similar items in EconPapers)
JEL-codes: G12 G31 J33 M21 M40 M41 (search for similar items in EconPapers)
Pages: 7
Date: 2011-01-17
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Persistent link: https://EconPapers.repec.org/RePEc:col:000463:007857

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