cost of capital when dividends are deductible

Clicks: 215
ID: 250356
2011
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Ranked #8 of 23 articles by views in Microscopy and microanalysis : the official journal of Microscopy Society of America, Microbeam Analysis Society, Microscopical Society of Canada

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Abstract
Tax savings and the discount rate we use to calculate their value are involved in the calculation of cost of capital. Based on previous findings, we derive a general approach to cash flow valuation that take into account any kind of tax shields related to the financing decision of a firm and any date when they are earned. They can be used to introduce any type of externality that creates value through tax savings not captured by neither the cost of debt nor the cost of equity. This paper develops the formulations for the cost of capital when dividends, interest on equity or monetary correction of equity are deductible as it happens in Brazil. It shows that when properly done most known valuation methods are consistent and give identical results. Also, the paper argues that when dividends are tax deductible, optimal leverage is lower and equity value is higher.
Reference Key
velez-pareja2011revistacost Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors ;Ignacio Velez-Pareja;Julian Benavides Franco
Journal Microscopy and microanalysis : the official journal of Microscopy Society of America, Microbeam Analysis Society, Microscopical Society of Canada
Year 2011
DOI
DOI not found
URL
http://bibliotecadigital.fgv.br/ojs/index.php/rbfin/article/view/3037
Keywords
corporate finance discount rate for tax savingsfinance

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