We derive and present the formula for optimal debt under the assumption that tax shields are discounted at the cost of levered equity, Ke and cash flows are on perpetuity. The formulation is consistent and is derived from basic financial principles. This formulation is valid for non-growing...

In these slides we discuss the practical and conceptual difficulty of finding an Optimal Capital Structure. We propose a normative approach we call Implicit Bankruptcy Costs Theory and how to proceed to find the optimal capital structure and value with period-to-period constant and variable...

The value of debt tax shields in foundational corporate valuation models by Nobel Laureates Modigliani and Miller (MM) continues to be a controversial issue that is central to our understanding of corporate finance. This paper argues that a fundamental valuation problem exists in the MM tax...

This paper shows how to proceed to find the optimal capital structure and value with period-to-period constant and variable leverage, when the discount rate for tax shields is Ke, the cost of levered equity. Numerical procedures and recursive closed-form non-circular expressions for the...