Abstract
In connection with financial leases, one frequently ecounters the following valuation rule: Discount the after-tax lease payments and depreciation tax shields displaced by the lease at the company’s after-tax borrowing rate. This valuation rule, which assumes simultaneous taxes, was derived by Myers et al. (1976), Franks and Hodges (1978), and Levy and Sarnat (1979). It has since been applied by a number of authors, for instance Benninga (1989, pp. 39–66) and Brick et al. (1987). The same rule, to discount the after-tax amounts at the after-tax borrowing rate, has also been proposed for safe, nominal cash flows by Ruback (1986) and Brealey and Myers (1991, pp. 470–474). This rule follows very easily, if the problem of choosing between leasing or borrowing, or valuing a safe nominal cash flow, is posed as a linear programming (LP) problem (Jennergren 1990).
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References
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© 1993 Physica-Verlag Heidelberg
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Jennergren, L.P. (1993). Discounting When Taxes are Paid One Year Later: A Finance Application of Linear Programming Duality. In: Flavell, R. (eds) Modelling Reality and Personal Modelling. Contributions to Management Science. Physica, Heidelberg. https://doi.org/10.1007/978-3-642-95900-4_13
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DOI: https://doi.org/10.1007/978-3-642-95900-4_13
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