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Consistent valuation: extensions from bankruptcy costs and tax integration with time-varying debt

Author

Listed:
  • Nguyen Kim-Duc

    (University of Economics Ho Chi Minh City (UEH)
    University of Economics Ho Chi Minh City (UEH))

  • Pham Khanh Nam

    (University of Economics Ho Chi Minh City (UEH))

Abstract

This study introduces a new version of the adjusted present value (APV) method and ensures its consistent valuation with the cost of capital (CoC) method at the highest level of generalization. The newly developed APV version and equivalent formulae consider stochastic debt and the trade-off between corporate income taxes (CIT) and personal income taxes (PIT), as well as tax benefits and financial distress costs. The value of expected bankruptcy costs aligns with the valuation aspect, enabling practical application of the formulae by valuers. The equivalence also reflects the differing perspectives of tax shields between stockholders and debt holders when PITs are introduced. Ultimately, the results demonstrate that the equivalence in this study aligns with, and can reduce to, previous standard formulae, under their stringent assumptions.

Suggested Citation

  • Nguyen Kim-Duc & Pham Khanh Nam, 2024. "Consistent valuation: extensions from bankruptcy costs and tax integration with time-varying debt," Review of Quantitative Finance and Accounting, Springer, vol. 62(2), pages 719-754, February.
    • Handle: RePEc:kap:rqfnac:v:62:y:2024:i:2:d:10.1007_s11156-023-01217-5
    DOI: 10.1007/s11156-023-01217-5
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    References listed on IDEAS

    as
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