Abstract
This chapter explains how to determine the optimal coupon payment for a firm striving to minimize post-tax payments to bondholders, and describes that the actions of the firm acting to minimize its post-tax debt payment, in the face of potential bond buyers who act in their own self-interest as wealth-maximizers, result in a market issue price that is identical to that obtained if both firm and buyers were to collude in selecting a coupon rate that minimizes the sum of tax payments of the coalition's participants. The analysis is restricted to single-period bonds and is initially conducted in a deterministic system under two different tax systems.
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