A simple accounting-based valuation model for the debt tax shield
Andreas Scholze
This paper describes a simple way to integrate the debt tax shield into an accounting-based valuation model. The market value of equity is determined by forecasting residual operating income, which is calculated by charging operating income for the operating assets at a required return that accounts for the tax benefit that comes from borrowing to raise cash for the operations. The model assumes that the firm maintains a deterministic financial leverage ratio, which tends to converge quickly to typical steady-state levels over time. From a practical point of view, this characteristic is of particular help, because it allows a continuing value calculation at the end of a short forecast period.
Year of publication: |
2010
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Authors: | Scholze, Andreas |
Published in: |
Business research : BuR ; official open access journal of VHB, Verband der Hochschullehrer für Betriebswirtschaft e.V. - Göttingen : VHB, ISSN 1866-8658, ZDB-ID 2426376X. - Vol. 3.2010, 1, p. 37-47
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