Topic
Adjusted present value
About: Adjusted present value is a research topic. Over the lifetime, 247 publications have been published within this topic receiving 7139 citations.
Papers published on a yearly basis
Papers
TL;DR: In this article, the authors integrate under firm-specific benefit functions to estimate that the capitalized tax benefit of debt equals 97 percent of firm value (or as low as 43 percent, net of personal taxes) The typical firm could double tax benefits by issuing debt until the marginal tax benefit begins to decline.
Abstract: I integrate under firm-specific benefit functions to estimate that the capitalized tax benefit of debt equals 97 percent of firm value (or as low as 43 percent, net of personal taxes) The typical firm could double tax benefits by issuing debt until the marginal tax benefit begins to decline I infer how aggressively a firm uses debt by observing the shape of its tax benefit function Paradoxically, large, liquid, profitable firms with low expected distress costs use debt conservatively Product market factors, growth options, low asset collateral, and planning for future expenditures lead to conservative debt usage Conservative debt policy is persistent
1,754 citations
TL;DR: In this article, the implicit cost of debt is inferred by observing where firms locate on their interest-deduction benefit curves, and the present value tax benefit of interest deductions is estimated to equal approximately 10% of firm value.
Abstract: This paper estimates how much "interest deductibility" contributes to firm value. By integrating under firm-specific benefit functions, the present value tax benefit of interest deductions is estimated to equal approximately 10% of firm value. The economy-wide benefit peaked at about $118 billion in 1990 (or about $60 billion, net of the personal tax penalty). The implicit cost of debt is inferred by observing where firms locate on their interest-deduction benefit curves. Paradoxically, profitable firms with low apparent costs are very conservative in their pursuit of interest deductions. Conservative debt policy is persistent and firms do not use their financial slack to fund future capital expenditures or acquisitions.
1,164 citations
TL;DR: In this paper, the value of a project's levered cash flow stream is defined as the sum of these two present values, one representing the effects of the investment decision and the other capturing the effect of the financing decision.
Abstract: For financial management to make wealth maximizing capital budgeting decisions, a model that will determine correctly the market value of a project's levered cash flows is required. A capital budgeting model should account not only for the effects of the investment decision, but also for the effects of the financing decision and the interactions between the two decisions. In perfect capital markets all the effects of the financing decision pertain to the tax shield created by debt financing. Thus, as originally shown by Modigliani and Miller [8], the value of a project's levered cash flow stream equals the market value the stream would have if it were unlevered plus the market value of the stream of tax savings on interest payments associated with the debt employed to finance the project. While this result is completely general with respect to the specific processes utilized by the market to value the two components, MM specified the value of the unlevered component as the present value of the unlevered cash flows discounted at the appropriate risk adjusted unlevered cost of capital and they specified the value of the tax savings component as the present value of the tax shield on interest discounted at the cost of debt. Accordingly, the value of a project's levered cash flows is specified as the sum of these two present values, one representing the effects of the investment decision and the other capturing the effects of the financing decision. The MM valuation model has been extended to normative capital budgeting analysis by Myers [9] in terms of the adjusted present value (APV) model.
581 citations
TL;DR: In this article, the authors estimate the value of tax benefits in 76 management buyouts of public companies completed in the period 1980 to 1986, and suggest that tax benefits are an important source of the wealth gains in management buyout.
Abstract: This paper estimates the value of tax benefits in 76 management buyouts of public companies completed in the period 1980 to 1986. The median value of tax benefits, estimated at the time the buyout company goes private, has a lower bound of 21% and an upper bound of 143% of the premium paid to pre-buyout shareholders. The estimated value depends on the rate buyout debt is repaid and the tax rate applied to the interest deductions. The paper also presents evidence on the actual taxes paid and debt repayment rates by these companies after the buyout. The results in this paper suggest that tax benefits are an important source of the wealth gains in management buyouts.
527 citations
TL;DR: In this paper, the authors provide an approach for developing risk-adjusted discount rates that follows naturally from the standard presentation of the weighted average cost of capital, examining the implied assumptions about the valuation of corporate debt and showing the pedagogic advantages of the proposed approach.
Abstract: This paper provides an approach for developing risk-adjusted discount rates that follows naturally from the standard presentation of the weighted average cost of capital. In addition to examining the implied assumptions about the valuation of corporate debt, the paper shows the pedagogic advantages of the proposed approach.
285 citations
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Performance Metrics
| Year | Papers |
|---|---|
| 2021 | 1 |
| 2020 | 4 |
| 2019 | 3 |
| 2018 | 3 |
| 2017 | 3 |
| 2016 | 6 |