In a forthcoming paper, Fernandez (2002) claims to derive a formula for the valuation of debt tax shields for firms with cash flows that grow perpetually at a constant rate. We show that his formula is incorrect and provide an example where his valuation would admit arbitrage

An investor using the payback method needs a criterion which will separate the good projects from the bad. This criterion should be compatible with the net present value concept. We call it the critical payback period and prove that such a period exists