Consistent Valuation and Cost of Capital Expressions with Corporate and Personal TAxes

Robert A. Taggart, Jr.

No 3074, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines three valuation methods, each of which should lead to the same value for a given asset. These are the Adjusted Present Value, Adjusted Discount Rate and Flows to Equity methods. To achieve identical valuations, however, the different methods must be implemented with cost of capital expressions that embody a consistent set of assumptions about (1) the tax regime and (2) the time pattern and riskiness of debt tax shields. Valuation and cost of capital expressions that have been proposed in the literature are grouped and contrasted according to these assumptions. It is also shown that the familiar weighted average cost of capital can be consistent with any such set of assumptions, as long as the correct expression is used to estimate the relationship between the levered and unlevered cost of equity.

Date: 1989-08
Note: PE ME
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published as FM, Vol. 20, no. 3 (1991): 8-20.

Downloads: (external link)
http://www.nber.org/papers/w3074.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:3074

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w3074

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().