On the risk-neutral value of debt tax shields

• Autores: M. Barbi
• Localización: Applied financial economics, ISSN 0960-3107, Vol. 22, Nº. 1-3, 2012, págs. 251-258
• Idioma: inglés
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• Resumen

  • The recent interest in the valuation of the benefits from debt financing arises from the disagreement in the financial literature about the meaning of �value of tax shields�. Although it is accepted that the tax deductibility of interest increases the value of the firm, the correct valuation of this extra-value is controversial. We adopt a risk-neutral approach to derive a general formula for the value of tax shields. This framework clearly shows that this value equals the summation of the discounted future tax savings. Once we specify a leverage policy and a cash flow dynamics, some well-known formulas are obtained.