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

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

Fernandez [2004; The value of tax shields is NOT equal to the present value of tax shields. Journalof Financial Economics, 73, 145–165] claims to derive a formula for the valuation of debt tax shieldsfor firms with cash flows that growperpetually at a constant rate.We showthat his formula is...

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.

In a recent paper, Pablo Fernandez (2002) makes the unusual and paradoxical sounding claim that for cash flows in perpetuity with a constant growth rate g, the value of the tax shields VTS is NOT equal to the present value of the tax shields. To be specific, Fernandez purportedly shows that the...

In the standard CAPM with a riskless asset we give a sufficient condition for uniqueness. This condition is a joint restriction on the agents' endowments and their preferences which is compatible with non-increasing absolute risk aversion and which is in particular satisfied with constant...

The conventional wisdom about psi, the appropriate discount rate for the tax shield, is as follows. If the tax shield is risk-free, that is, the revenue is sufficient to ensure that the interest deduction will be used with full certainty in the relevant period, then the appropriate discount rate...

There are two ways to view the inter-temporal risk profile of a finite stream of cash flows that is represented by a binomial process. We can examine the risk profile of the cash flow process or the value process that is derived from the cash flow process. First, with respect to a given year n,...