Koziol (2014) derives a simple adjusted WACC equation for firm valuation that takes default probability, possible loss of future tax savings, and the potential costs of financial distress into account. In this note we show that the derivation of the adjusted formula rests on an assumption that,...

The German reform on taxation 2008 introduced a restriction of the deductibility of interest expenses to a ceiling of 30% of the EBITDA. This paper shows that the plain probability of reaching this ceiling depresses the value of the tax shield by an option that has a path dependent and recursive...