Optimal Investment and Financial Strategies under Tax-Rate Uncertainty
Keyword(s):
Tax Rate
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AbstractIn this paper, we apply a real-option model to study the effects of tax-rate uncertainty on a firm’s decision. In doing so, we depart from the relevant literature, which focuses on fully equity-financed investment projects. By letting a representative firm borrow optimally, we show that debt finance not only encourages investment activities but can also substantially mitigate the effect of tax-rate uncertainty on investment timing.
2009 ◽
Vol 12
(04)
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pp. 443-463
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2007 ◽
Vol 42
(2)
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pp. 467-488
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