A model for risky cash flows and tax shields
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.
Journal of Economics and Finance
A model for risky cash flows and tax shields.
Journal of Economics and Finance,
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