Present Value Of Tax Savings Research Articles

The relationship between profitability and capital structure of the agricultural holdings in the Czech Republic

Decision on the capital structure of an enterprise is very important because a bad decision can affect a company's profitability leading to a decrease in the shareholders value. The good financial decision can increase the market value of the owners' equity and poor financial decisions can decrease it. The main objective of financial decisions is to maximize the wealth of stockholders. The effect that capital structure decisions have on profitability and enterprise value is that it increases value through the present value of tax savings from the use of debt. The enterprises can use debt or equity capital to finance their assets. The best what they do is to mixture the debt and equity. This paper analyses how far the capital structure affects the profitability of agricultural holdings in the Czech Republic for a period of six years from 2008 to 2013. Data was obtained from the Albertina and was analysed by using the descriptive statistics, the correlation analysis and the regression analysis. The results show that there is a negative relationship between the short-term debt to the total assets and profitability, between the long-term debt to the total assets and profitability, and between the total debt to the total assets and profitability.

Tax saving's valuation under its appropiate risk profile: A Contingent Claim Approach

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.

Consistent Methods of Valuing Companies By Dcf: Methods and Assumptions

In this note we discuss four common methods of valuing firms: 1.Discounting operating free cash flow at the weighted average cost of capital. 2.Discounting equity free cash flow at the cost of equity. 3.Valuing the firm using adjusted present value. 4.Discounting the capital cash flow at the unlevered cost of capital. We examine four alternative assumptions about leverage policy and how they affect three things: discount rates, the present value of tax savings, and how to use the above methods. We describe alternative ways of implementing the valuation methods consistently, and how to choose between them. Finally, we show how inconsistent application can lead to errors that are subtle but large. The use of incorrect formulas can result in an estimate of the present value of the tax saving that is double its correct value.

A New Approach to WACC, Value of Tax Savings and Value for Growing and Non Growing Perpetuities: A Clarification

In this note we correct the findings reported by Velez-Pareja and Tham (2005). Although perpetuities are somewhat artificial in the sense that in practice they do not exist, they are relevant because no matter how detailed and complex a forecasted financial plan for a firm or project could be, terminal value usually is calculated as a perpetuity. This terminal value might be a growing or a non growing perpetuity. On the other hand, usually terminal value is a substantial part of the firm value. In this note we examine in detail the proper discount rate for cash flows in perpetuity, the present value of tax savings and the calculation of terminal value, which is the value of the perpetuity. We compare the typical textbook proposals for calculating the value of a perpetuity and we found that there are significant deviations. We compare with the Miller and Modigliani (1961) plowback proposal adopted by Copeland et al. (2000). The findings contradict what is generally accepted in the literature.

Wacc, Value of Tax Savings and Terminal Value for Growing and Non Growing Perpetuities

Although perpetuities are somewhat artificial in the sense that in practice they do not exist, they are relevant because no matter how detailed and complex a forecasted financial plan for a firm or project could be terminal value usually is calculated as perpetuity. This terminal value might be a growing or a non growing perpetuity. On the other hand, usually terminal value is a substantial part of the firm value. In this note we examine in detail the proper discount rate for cash flows in perpetuity, the present value of tax savings and the calculation of terminal value. The findings contradict what is generally accepted in the literature.

Depreciable Basis/ITC Decisions When the ITC Is Deferred

tions. In some cases the correct choice is readily apparent. In others, it is not so obvious. For example, because accelerated depreciation provides for earlier tax deductions, it is generally a better alternative than straight-line depreciation. However, firms and individuals whose rapidly growing income pushes them quickly from relatively low tax rates to higher rates may prefer to delay the deductions until they offset taxes at higher rates. In such cases, accelerated depreciation may provide a smaller present value of tax savings than straight-line depreciation. Other things equal, the best choice will be the alternative that maximizes the present value of tax savings from credits and deductions,