We develop valuation formulae for a company that maintains a fixed book-value leverage ratio and claim that it is more realistic than to assume, as Miles-Ezzell (1980) do, a fixed market-value leverage ratio. The value of tax shields depends only on the present value of the net increases of...

I correct some expressions in Fernández (2004) and provide a more general expression for the value of tax shields. This expression is the difference between the present values of two different cash flows, each with its own risk: the present value of taxes for the unlevered company and the...

There is a wealth of literature about discounted cash flow valuation. In this paper, we will discuss the most important papers, highlighting those that propose different expressions for the value of the tax shield (VTS). The discrepancies between the various theories on the valuation of a...

The value of tax shields depends only on the nature of the stochastic process of the net increases of debt. The value of tax shields in a world with no leverage cost is the tax rate times the current debt plus the present value of the net increases of debt. We develop valuation formulae for a...

In a recent paper, Cooper and Nyborg (2004) argue that the results of Fernández (2004) are wrong because value-additivity is violated and because "Fernández paper comes from mixing the Miles-Ezzell leverage policy with the Miller-Modigliani leverage adjustment." Cooper and Nyborg's paper is...

The Comment is thought provoking and helps a lot in rethinking the value of tax shields. However, the conclusion of Fieten, Kruschwitz, Laitenberger, Löffler, Tham, Vélez-Pareja and Wonder (2005) is not correct because, as will be proven below, the main result of Fernández (2004) is correct...

This paper explores the discounted cash flow valuation methods. We start the paper with the simplest case: no-growth, perpetual-life companies. Then we will study the continuous growth case and, finally, the general case. The different concepts of cash flow used in company valuation are defined:...

This paper corrects some of the equations of Farber, Gillet and Szafarz (2006). The WACC is a discount rate widely used in corporate finance. However, correctly calculating the WACC involves properly calculating the value of tax shields, and the value of tax shields depends on the company's debt...

We value a company that targets its capital structure in book-value terms. This capital structure definition provides us with a valuation that lies between those of Modigliani-Miller (fixed debt) and Miles-Ezzell (fixed market-value leverage ratio). We show that if a company targets its leverage...

We prove that in a world without leverage cost the relationship between the levered beta ( L) and the unlevered beta ( u) is the No-costs-of-leverage formula: L = u + ( u - d) D (1 - T) / E. We also analyze 6 alternative valuation theories proposed in the literature to estimate the relationship...