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...

This paper presents a formal derivation of general expressions for Ke and WACC in perpetuities with constant growth, which do not make any assumption on what the proper discount rate is to be applied to the firm's tax shield, and are complemented with numerical examples of its application....

There are methods to match value added approaches (Residual Income Method, RIM and Economic Value Added, EVA) with discounted cash flow methods, DCF. In this note we use a real life case from an emerging country to illustrate the matching, with complexities such as unpaid taxes, losses carried...

The interrelationships between cash flows, corresponding discount rates and values follow certain rules, knowing which one can quite easily and correctly find out value of given cash flow using the discounting-by-components framework, or to find the correct formulation of the discount rate for...

There is a lot of confusion among practitioners about valuing firms and investment projects. At the first sight the discounting procedure is a simple and routine task, which does not involve much effort. But actually even in simple cases accurate valuation requires attention to plenty of...

La versión española de este artículo se puede encontrar en: "http://ssrn.com/abstract=1826264" http://ssrn.com/abstract=1826264This 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...

The benefit of non-information rationing aggregate performance evaluation is studied in a limited commitment setting. Depending on the prior distribution of the managerial skill parameter, an equal bonus rule, that is intertemporal aggregation of performance measures, can be efficient as it...

We consider a single-principal/multi-agent model to investigate the principal's preferences over delegated contracting. The analysis extends the single-agent/multi-task LEN model in Feltham and Xie (1994) to a multi-agent/multi-task context. We consider full-commitment contracts, i.e., the...

Cost-based transfer pricing is used by many firms. However, there exist many cost-based methods that may be centralized or decentralized. If centralized, the firm's central office has discretion how accurately to measure the divisions' costs. In order to measure cost reliably, the firm must...

Numerous (high-tax) countries presume that multinational firms use their transfer-pricing policies to shift profits into countries with lower tax rates. To avoid the corresponding loss in tax revenues, tax authorities develop constantly tightening rules which limit the scope of transfer-price...