Cost of Capital of Government's Claim and the Present Value of Tax Shields

2009 ◽  
Author(s):  
Marc Schauten ◽  
Boudewijn Tans
Keyword(s):  
Cost Of Capital ◽  
Present Value ◽  
Tax Shields

scholarly journals The implied cost of capital of government’s claim and the present value of tax shields: A numerical example

2014 ◽  
Vol 3 (1) ◽  
pp. 40
Author(s):  
M. B.J. Schauten ◽  
B. Tans
Keyword(s):  
Discount Rate ◽  
Cost Of Capital ◽  
Present Value ◽  
Numerical Example ◽  
Implied Cost Of Capital ◽  
Tax Shields ◽  
The Difference ◽  
The Cost

This paper provides a numerical example of how to calculate the cost of capital of government’s claim (rg) and the present value of tax shields. Schauten and Tans (2006) show for the models used in Myers (1974), Miles and Ezzell (1980) and Harris and Pringle (1985), that the present value of tax shields is equal to the difference between the present value of the expected taxes paid by the unlevered firm and the levered firm, with each of the models’ implied rg as discount rate. We discuss a numerical example using the valuation framework by Schauten and Tans (2006) and give a logic explanation for the low implied rgs of Miles and Ezzell’s and Harris and Pringle’s model.

Comment on 'The Value of Tax Shields is NOT Equal to the Present Value of Tax Shields', Including an Arbitrage Opportunity

2003 ◽  
Author(s):  
Nicholas X. Wonder ◽  
Paul Fieten ◽  
Lutz Kruschwitz ◽  
Jörg Laitenberger ◽  
Andreas Löffler ◽  
...  
Keyword(s):  
Present Value ◽  
Tax Shields ◽  
Arbitrage Opportunity

scholarly journals Decision Making for Project Appraisal in Uncertain Environments: A Fuzzy-Possibilistic Approach of the Expanded NPV Method

Symmetry ◽  
2020 ◽  
Vol 13 (1) ◽  
pp. 27
Author(s):  
Konstantinos A. Chrysafis ◽  
Basil K. Papadopoulos
Keyword(s):  
Net Present Value ◽  
Fuzzy Numbers ◽  
Cost Of Capital ◽  
Weighted Average ◽  
Present Value ◽  
Major Drawback ◽  
Project Appraisal ◽  
Equity Cost ◽  
Set Up ◽  
Intelligent Methods

The major drawback of the classic approaches for project appraisal is the lack of the possibility to handle change requests during the project’s life cycle. This fact incorporates the concept of uncertainty in the estimation of this investment’s worth. To resolve this issue, the authors use fuzzy numbers, possibilistic moments of fuzzy numbers and the hybrid (fuzzy statistic) fuzzy estimators’ method in order to introduce a fuzzy possibilistic version of the expanded net present value method (FPeNPV). This approach consists of two factors: the fuzzy possibilistic NPV and the fuzzy option premium. For the estimation of the fuzzy NPV, some basic assumptions are taken into consideration: (1) the opportunity cost of capital, used as the present value interest factor calculated through the weighted average cost of capital (WACC), (2) the equity cost, determined through the possibilistic set-up of the capital asset pricing model CAPM, and (3) the inflation factor, also included in the estimation of the NPV. The fuzzy estimators’ method is used for the computation of the fuzzy option premium. An algorithm of nine major steps leads to the computation of the FPeNPV. This gives the administration the opportunity to adapt to potential changes in the company’s internal and external environments. In this way, the symmetry between the planning and execution phase of a project can be reinstated. The results validate the statement that fuzzy and intelligent methods remain valuable tools to express uncertainty in various scientific areas. Finally, an illustrative example aims at a thorough comprehension of this new approach of the expanded NPV method.

Revised Comment on 'The Value of Tax Shields is NOT Equal to the Present Value of Tax Shields'

2003 ◽  
Author(s):  
Nicholas X. Wonder ◽  
Joseph Tham ◽  
Ignacio Velez-Pareja ◽  
Andreas Löffler ◽  
Paul Fieten
Keyword(s):  
Present Value ◽  
Tax Shields

Distortions Imposed by Inflation on Historical-Cost Depreciation

1983 ◽  
Vol 12 (1) ◽  
pp. 91-98
Author(s):  
Boris E. Bravo-Ureta
Keyword(s):  
Cost Of Capital ◽  
Economic Cost ◽  
Rate Of Return ◽  
Present Value ◽  
Tax Rate ◽  
The Real ◽  
Historical Cost ◽  
Depreciation Methods

The use of historical-cost depreciation in periods of persistent inflation decreases the present value of depreciation deductions, thus understating the true economic cost of capital and increasing the real after-tax rate of return required by potential investors. Efforts to correct these problems by adopting depreciation methods that allow for artificially short recovery periods or accelerated rates do not provide an adequate solution. Distortions imposed by inflation on historical-cost depreciation can be adequately corrected by indexing the historical-cost basis.

scholarly journals ANALISIS KELAYAKAN USAHA COKELAT PRALINE DENGAN METODE CAPITAL BUDGETING DI TOKO KUE BAPER COKELAT PAMULANG

2020 ◽  
Vol 2 (2) ◽  
pp. 73
Author(s):  
Aod Abdul Jawad
Keyword(s):  
Net Present Value ◽  
Cost Of Capital ◽  
Capital Budgeting ◽  
Present Value

Toko Kue Baper Cokelat merupakan salah satu bentuk usaha perorangan yang salah satu produk andalannya adalah cokelat praline. Pada penelitian ini penulis membahas mengenai kelayakan usaha cokelat praline pada aspek pemasaran, teknis dan keuangan. Penulis menganalisa data keuangan toko dalam periode Januari 2018 sampai dengan Desember 2018. Metode yang digunakan adalah Capital Budgeting. Dari hasil analisa dalam periode Januari sampai dengan Desember 2018, didapat hasil usaha cokelat praline pantas dijalankan. Mengacu pada perhitungan Tingkat Pengembalian rata-rata (ARR) didapatkan nilai 132,09% lebih besar daripada tingkat cost of capital 7,37%, Net Present Value (NPV) positif bernilai Rp 216,643,572.14, Profitability Index diperoleh nilai 3,13 sesuai persyaratan harus lebih dari 1 ,Tingkat pengembalian Investasi (IRR) menghasilkan nilai 23,06% lebih besar dari tingkat suku bunga terendah 5,75%, Periode Pengembalian Investasi didapatkan hasil pengembalian dalam jangka waktu 3 tahun 2 bulan 13 hari.

B. ANALISA KELAYAKAN BISNIS PADA USAHA SWEETIN

2021 ◽  
Vol 4 (1) ◽  
pp. 11
Author(s):  
Vivi Indah Yani ◽  
Rachmat Mustofa Pratama ◽  
Izza Islami ◽  
Iman Supriadi
Keyword(s):  
Net Present Value ◽  
Cost Of Capital ◽  
Payback Period ◽  
Rate Of Return ◽  
Internal Rate Of Return ◽  
Present Value ◽  
Internal Rate ◽  
The Cost ◽  
Business Study

Abstrak Tujuan dari penelitian ini adalah untuk menganalisis dan mendeskripsikan studi kelayakan bisnis yang dilakukan pada Kewirausahaan “Sweetin” yaitu usaha yang baru dirintis di Surabaya dalam bidang makanan (dessert). Penelitian ini menggunakan metode Net Present Value (NPV), Internal Rate of Return (IRR) dan Payback Period (PP). Hasil yang diperoleh dalam penelitian ini yaitu nilai NPV sebesar Rp. 1.910.819 > dari nol. Nilai IRR sebesar 110% > dari cost of capital 10%. Dan PP 1 bulan. Hal ini berarti kewirausahaan Sweetin ini menunjukkan bahwa secara non-finansial dan finansial layak untuk dijalankan. Kata kunci: Kelayakan Usaha, Non-Finansial, Finansial Abstract             The purpose of this research is to analyze and describe the business study conducted on “Sweetin” Entrepreneurship, a business that has just been pioneered in Surabaya in the field of food (dessert). This study uses the method of Net Present Value (NPV), Internal Rate of Return (IRR) and Payback Period (PP). The results obtained in this study are the NPV value of Rp. 1,910,819> from zero. The IRR value is 110%> 10% of the cost of capital. And 1month PP. This means that Sweetin's entrepreneurship shows that it is non-financially and financially feasible to run. Keywords: Business Feasibility, Non-financial, Financial

A New Approach to Capital Budgeting in Closely-Held Firms and Small Firms

1981 ◽  
Vol 5 (4) ◽  
pp. 30-35 ◽  
Author(s):  
Thomas H. McInish ◽  
Ronald J. Kudla
Keyword(s):  
Small Firms ◽  
Net Present Value ◽  
Cost Of Capital ◽  
Weighted Average ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Separation Principle ◽  
Discount Rates ◽  
Present Value ◽  
Investor Returns

The traditional application of the net present value method in capital budgeting involves the use of market derived discount rates such as the cost of capital. Justification of these discount rates stems from the separation principle that states that investment decisions can be made independent of shareholders' tastes and preferences. The purpose of this paper is to show that the separation principle does not hold for closely-held firms and small firms, and, accordingly, market-derived discount rates are inappropriate. Two capital budgeting techniques which are appropriate for these firms are presented. Accept/reject decisions for capital budgeting projects are often made using a technique known as “net present value” (NPV).1 Using the NPV method, acceptable projects are those for which the project's cost is less than the present value of the project's cash flows discounted at the firm's cost of capital; in other words, acceptable projects have a positive NPV. The firm's cost of capital is usually taken to be the weighted average of the firm's cost of equity and debt as measured by investor returns in the capital markets. Justification for use of a discount rate, determined by reference to market-wide investor returns, is based on “the separation principle” which asserts that corporations can make capital budgeting decisions independently of their shareholders' views.2 But because a critical assumption of the separation principle is that shares are readily marketable, it is likely that the separation principle and, hence, market-determined discount rates are inappropriate for closely-held firms and small firms.3 In this paper, we discuss two capital budgeting approaches which are applicable to firms whose shares are not readily marketable. This paper is divided into five sections. First, we discuss the traditional net present value approach to capital budgeting and, then, we indicate in detail, why it may not be suitable for use by closely-held firms and small firms. In the third and fourth sections, we explain two capital budgeting techniques which may be appropriate for use by these firms. Finally, we summarize our conclusions.

Sign in / Sign up

Export Citation Format

Share Document