Title:	A Simple Accounting-based Valuation Modelfor the Debt Tax Shield
Authors:	Andreas Scholze
Keywords:	financial statement analysis, equity valuation, financial leverage, corporate income tax,debt tax shield, residual income valuation, cost of capital, Feltham-Ohlson framework
Issue Date:	2010
Description:	This paper describes a simple way to integrate the debt tax shield into an accounting-based valuation model. The market value of equity is determined by forecasting residual operating income, which is calculated by charging operating income for the operating assets at a required return that accounts for the tax benefit that comes from borrowing to raise cash for the operations. The model assumes that the firm maintains a deterministic financial leverage ratio, which tends to converge quickly to typical steady-state levels over time. From a practical point of view, this characteristic is of particular help, because it allows a continuing value calculation at the end of a short forecast period.
URI:	http://196.189.45.87:8080/handle/123456789/104408
Appears in Collections:	Accounting and Finance

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