Advertisement

Is It Possible to Increase the Investment Efficiency by Increasing Tax on Profit Rate? An Abnormal Influence of the Growth of Tax on Profit Rate on the Efficiency of the Investment

  • Peter Brusov
  • Tatiana Filatova
  • Natali Orekhova
  • Mukhadin Eskindarov
Chapter

Abstract

Within the modern theory of capital cost and capital structure by Brusov–Filatova–Orekhova (BFO theory) (Brusov and Filatova, Finance Credit 435:2–8, 2011; Brusov et al., Appl Financ Econ 21:815–824, 2011a, Res J Econ Bus ICT 2:16–21, 2011b, Res J Econ Bus ICT (UK) 2:11–15, 2011c, Appl Financ Econ 22:1043–1052, 2012a, J Rev Global Econ 1:106–111, 2012b, J Rev Global Econ 2:94–116, 2013a, J Rev Global Econ 2:183–193, 2013b, Cogent Econ Finance 2:1–13, 2014a, J Rev Global Econ 3:175–185, 2014b; Filatova et al., Bull FU 48:68–77, 2008; Brusova, Financ Anal Prob Sol 34:36–42, 2011) and modern investment models created within this theory, the influence of the growth of tax on profit rate on the efficiency of the investment is investigated. It has been shown that for long-term investment projects, as well as for arbitrary duration projects, the growth of tax on profit rate changes the nature of the NPV dependence on leverage at some value t*: there is a transition from the diminishing function NPV(L), when t < t*, to the growing function NPV(L). The t* value depends on the duration of the project, cost of capital (equity and debt) values, and other parameters of the project.

References

  1. Brusov P, Filatova T, Orehova N, Brusova A (2011a) Weighted average cost of capital in the theory of Modigliani–Miller, modified for a finite life–time company. Appl Financ Econ 21(11):815–824CrossRefGoogle Scholar
  2. Brusov P, Filatova T, Orehova N et al (2011b) From Modigliani–Miller to general theory of capital cost and capital structure of the company. Res J Econ Bus ICT 2:16–21Google Scholar
  3. Brusov P, Filatova T, Orehova N et al (2011c) Influence of debt financing on the effectiveness of the investment project within the Modigliani–Miller theory. Res J Econ Bus ICT (UK) 2:11–15Google Scholar
  4. Brusov P, Filatova T, Eskindarov M, Orehova N (2012a) Influence of debt financing on the effectiveness of the finite duration investment project. Appl Financ Econ 22(13):1043–1052CrossRefGoogle Scholar
  5. Brusov P, Filatova T, Eskindarov M, Orehova N (2012b) Hidden global causes of the global financial crisis. J Rev Global Econ 1:106–111Google Scholar
  6. Brusov P, Filatova P, Orekhova N (2013a) Absence of an optimal capital structure in the famous tradeoff theory! J Rev Global Econ 2:94–116Google Scholar
  7. Brusov P, Filatova T, Orehova N (2013b) A qualitatively new effect in corporative finance: abnormal dependence of cost of equity of company on leverage. J Rev Global Econ 2:183–193Google Scholar
  8. Brusov P, Filatova P, Orekhova N (2014a) Mechanism of formation of the company optimal capital structure, different from suggested by trade off theory. Cogent Econ Finance 2:1–13.  https://doi.org/10.1080/23322039.2014.946150 CrossRefGoogle Scholar
  9. Brusov P, Filatova T, Orehova N (2014b) Inflation in Brusov–Filatova–Orekhova theory and in its perpetuity limit – Modigliani – Miller theory. J Rev Global Econ 3:175–185CrossRefGoogle Scholar
  10. Brusov P, Filatova T, Orehova N, Eskindarov M (2015) Modern corporate finance, investment and taxation, 1st edn. Springer International Publishing, Berlin, pp 1–368CrossRefGoogle Scholar
  11. Brusov P, Filatova T, Orehova N, Kulk V, Weil I (2018a) New meaningful effects in modern capital structure theory. J Rev Global Econ 7:104–122CrossRefGoogle Scholar
  12. Brusov P, Filatova T, Orehova N, Kulk V (2018b) A “golden age” of the companies: conditions of its existence. J Rev Global Econ 7:88–103CrossRefGoogle Scholar
  13. Brusov P, Filatova T, Orehova N, Kulk V (2018c) Rating methodology: new look and new horizons. J Rev Global Econ 7:63–87CrossRefGoogle Scholar
  14. Brusov P, Filatova T, Orehova N, Kulk V (2018d) Rating: new approach. J Rev Global Econ 7:37–62CrossRefGoogle Scholar
  15. Brusov PN, Filatova ТV (2011) From Modigliani–Miller to general theory of capital cost and capital structure of the company. Finance and Credit 435:2–8Google Scholar
  16. Brusova A (2011) А comparison of the three methods of estimation of weighted average cost of capital and equity cost of company. Financ Anal Prob Sol 34(76):36–42Google Scholar
  17. Filatova Т, Orehova N, Brusova А (2008) Weighted average cost of capital in the theory of Modigliani–Miller, modified for a finite life–time company. Bull FU 48:68–77Google Scholar
  18. Мodigliani F, Мiller M (1958) The cost of capital, corporate finance, and the theory of investment. Am Econ Rev 48:261–297Google Scholar
  19. Мodigliani F, Мiller M (1963) Corporate income taxes and the cost of capital: a correction. Am Econ Rev 53:147–175Google Scholar
  20. Мodigliani F, Мiller M (1966) Some estimates of the cost of capital to the electric utility industry 1954–1957. Am Econ Rev 56:333–391Google Scholar

Copyright information

© Springer Nature Switzerland AG 2018

Authors and Affiliations

  • Peter Brusov
    • 1
  • Tatiana Filatova
    • 1
  • Natali Orekhova
    • 2
  • Mukhadin Eskindarov
    • 1
  1. 1.Financial University under the Government of Russian FederationMoscowRussia
  2. 2.Center of Corporate Finance, Investment, Taxation and RatingsThe Research Consortium of Universities of the South of RussiaRostov-on-DonRussia

Personalised recommendations