Abstract
Tax saving’s valuation is crucial for discounted cash flow valuation and WACC estimation. There is an ongoing debate about the appropriate discount rate for tax savings under CAPM approach. On this paper we evaluate tax savings from a contingent claim approach in order to establish a framework which could be compatible with discounted cash flow valuation while being consistent with tax saving’s nature. We present two approach based on contingent claims with continuous real and risk neutral probabilities, and propose a strategy based on sequential portfolios of European options for its valuation. We state that the value of tax savings is the present value of tax savings, and provide a valuation formula that can be integrated with a traditional discount cash flow model under WACC and APV.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
