The Determination of Optimal Value of the Firm in the Short and Long Run by Fine Tuning the Debt Ratio and Payout Ratio under the New Dutch Income Tax Code

J.E.O. Renaud

No 04-07, Working Papers from Utrecht School of Economics

Abstract: The optimal value of the firm under the new Dutch income tax reform act in 2002, is reconsidered in this discussion paper. Tax shield of debt-financing and the aggregate tax payments of its joint investors are simultaneously considered. A more-period model is presented for making integrated decisions about the optimal capital structure and dividend policy. By considering the three parties involved: corporation, all individual investors and the Inland Revenue, the financing decision can be solved as a zero sum game. By simultaneously fine-tuning the debt and payout ratio, the model gives the conditions for maximizing firm’s value.

Keywords: capital structure; debt ratio and payout ratio; Dutch income tax; firm value; Ordered by external client (search for similar items in EconPapers)
Date: 2004-01
New Economics Papers: this item is included in nep-fin
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