Title
A model for risky cash flows and tax shields
Document Type
Article
Publication Date
11-23-2010
Abstract
We extend the WACC and APV frameworks by incorporating risky cash flows and the potential loss of tax shields. A closed-form solution is derived for the expected effective tax shields. Our model explains the under-leverage puzzle, and provides better estimates for the required equity return through the improved WACC and APV formulae. It offers four empirically testable predictions.
Publication Title
Journal of Economics and Finance
Recommended Citation
Qi, H.,
Liu, S.,
&
Johnson, D.
(2010).
A model for risky cash flows and tax shields.
Journal of Economics and Finance,
36(4), 868-881.
http://doi.org/10.1007/s12197-010-9162-7
Retrieved from: https://digitalcommons.mtu.edu/business-fp/5
Publisher's Statement
© Springer Science+Business Media, LLC 2010. Publisher's version of record: https://dx.doi.org/10.1007/s12197-010-9162-7