IDEAS home Printed from https://ideas.repec.org/h/spr/sprchp/978-3-031-27929-4_23.html
   My bibliography  Save this book chapter

Innovative Investment Models with Frequent Payments of Tax on Income and of Interest on Debt

In: The Brusov–Filatova–Orekhova Theory of Capital Structure

Author

Listed:
  • Peter Brusov

    (Financial University under the Government of Russian Federation)

  • Tatiana Filatova

    (Financial University under the Government of Russian Federation)

  • Natali Orekhova

    (Financial University under the Government of Russian Federation)

Abstract

New modern investment models are created to be as close as possible to real investment conditions. We consider long-term as well as arbitrary duration models with payments of interest on debt and of tax on income a few times per year (semi-annually, quarterly, and monthly), which could be applied in real economic practice. Their verification will lead to the creation of a comprehensive system of adequate and correct assessment of the effectiveness of the company’s investment program and its investment strategy. One of the most important elements of calculating the effectiveness of investment projects is the assessment of the discount rate, the calculation methods of which are generalized for the real conditions of the implementation of investment projects. We consider the effectiveness of the investment project from two points of view: the equity owners and the owners of equity and debt. NPV for each of these cases is calculated by two different methods: with the separation of credit and investment flows (and thus discounting the flows using two different rates) and without such separation (with discounting of both flows using the same rate, and WACC can be chosen as the rate). Numerical calculations, conducted for four investment models (without flow separation) show that: (1) in the case of considering the effectiveness of an investment project for owners of equity capital, the increase in the number of payments of tax on income and of interest on debt p leads to a decrease in NPV: this means that the effectiveness of an investment project decreases with p; (2) in the case of considering the effectiveness of an investment project for owners of equity and debt capital, the increase in the number of payments of tax on income and of interest on debt p leads to an increase in NPV: this means that the effectiveness of an investment project increases with p. In the former case, companies should pay tax on profit and interest on debt once per year, while in the latter case, more frequent payments are profitable for the effectiveness of investment. Eight innovative investment models created in this paper can assist decision-makers in the optimal design, planning, and control of company investments and the development of a company’s investment strategy.

Suggested Citation

  • Peter Brusov & Tatiana Filatova & Natali Orekhova, 2023. "Innovative Investment Models with Frequent Payments of Tax on Income and of Interest on Debt," Springer Books, in: The Brusov–Filatova–Orekhova Theory of Capital Structure, chapter 0, pages 501-528, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-27929-4_23
    DOI: 10.1007/978-3-031-27929-4_23
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Stephen Bond & Costas Meghir, 1994. "Dynamic Investment Models and the Firm's Financial Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(2), pages 197-222.
    2. Dotan, Amihud & Ravid, S Abraham, 1985. "On the Interaction of Real and Financial Decisions of the Firm under Uncertainty," Journal of Finance, American Finance Association, vol. 40(2), pages 501-517, June.
    3. Peter Brusov & Tatiana Filatova & Natali Orehova & Nastia Brusova, 2011. "Weighted average cost of capital in the theory of Modigliani-Miller, modified for a finite lifetime company," Applied Financial Economics, Taylor & Francis Journals, vol. 21(11), pages 815-824.
    4. Peter Brusov & Tatiana Filatova & Natali Orekhova & Mukhadin Eskindarov, 2015. "Modern Corporate Finance, Investments and Taxation," Springer Books, Springer, edition 127, number 978-3-319-14732-1, January.
    5. Whited, Toni M, 1992. "Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data," Journal of Finance, American Finance Association, vol. 47(4), pages 1425-1460, September.
    6. DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March.
    7. Marcos Escobar-Anel & Andreas Lichtenstern & Rudi Zagst, 2020. "Behavioral portfolio insurance strategies," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 34(4), pages 353-399, December.
    8. repec:bla:jfinan:v:43:y:1988:i:2:p:357-73 is not listed on IDEAS
    9. Peter Brusov & Tatiana Filatova & Natali Orekhova & Mukhadin Eskindarov, 2018. "Modern Corporate Finance, Investments, Taxation and Ratings," Springer Books, Springer, edition 2, number 978-3-319-99686-8, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Peter Brusov & Tatiana Filatova & Natali Orekhova, 2023. "Capital Structure Theory: Past, Present, Future," Springer Books, in: The Brusov–Filatova–Orekhova Theory of Capital Structure, chapter 0, pages 9-50, Springer.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fabio ALESSANDRINI, 2003. "Introducing Capital Structure in a Production Economy: Implications for Investment, Debt and Dividends," Cahiers de Recherches Economiques du Département d'économie 03.03, Université de Lausanne, Faculté des HEC, Département d’économie.
    2. Peter Brusov & Tatiana Filatova, 2021. "The Modigliani–Miller Theory with Arbitrary Frequency of Payment of Tax on Profit," Mathematics, MDPI, vol. 9(11), pages 1-25, May.
    3. Tatiana Filatova & Peter Brusov & Natali Orekhova, 2022. "Impact of Advance Payments of Tax on Profit on Effectiveness of Investments," Mathematics, MDPI, vol. 10(4), pages 1-25, February.
    4. Strebulaev, Ilya A. & Whited, Toni M., 2012. "Dynamic Models and Structural Estimation in Corporate Finance," Foundations and Trends(R) in Finance, now publishers, vol. 6(1–2), pages 1-163, November.
    5. Fabio Bertoni & María Ferrer & José Martí, 2013. "The different roles played by venture capital and private equity investors on the investment activity of their portfolio firms," Small Business Economics, Springer, vol. 40(3), pages 607-633, April.
    6. Jean-Bernard Chatelain, 2002. "Structural modelling of investment and financial constraints: Where do we stand?," Working Paper Research 28, National Bank of Belgium.
    7. Jacques Mairesse & Bronwyn H. Hall & Benoît Mulkay, 1999. "Firm-Level Investment in France and the United States: An Exploration of What We Have Learned in Twenty Years," Annals of Economics and Statistics, GENES, issue 55-56, pages 27-67.
    8. Ravid, S. Abraham & Venezia, Itzhak & Ofer, Aharon & Pons, Vicente & Zuta, Shlomith, 2007. "When are preferred shares preferred? Theory and empirical evidence," Journal of Financial Stability, Elsevier, vol. 3(3), pages 198-237, October.
    9. Chatelain, Jean-Bernard & Teurlai, Jean-Christophe, 2001. "Pitfalls in investment Euler equations," Economic Modelling, Elsevier, vol. 18(2), pages 159-179, April.
    10. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
    11. Ameer, Rashid, 2014. "Financial constraints and corporate investment in Asian countries," Journal of Asian Economics, Elsevier, vol. 33(C), pages 44-55.
    12. Steven N. Kaplan & Luigi Zingales, 1995. "Do Financing Constraints Explain Why Investment is Correlated with Cash Flow?," NBER Working Papers 5267, National Bureau of Economic Research, Inc.
    13. Poncet, Sandra & Steingress, Walter & Vandenbussche, Hylke, 2010. "Financial constraints in China: Firm-level evidence," China Economic Review, Elsevier, vol. 21(3), pages 411-422, September.
    14. Wald, John, 1999. "Capital structure with dividend restrictions," Journal of Corporate Finance, Elsevier, vol. 5(2), pages 193-208, June.
    15. Dinithi Ranasinghe, 2021. "Managerial entrenchment, financial constraints, and investment choice in unlisted firms," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 258-270, January.
    16. Broll, Udo & Wong, Keith K.P., 2010. "The firm under uncertainty: capital structure and background risk," Dresden Discussion Paper Series in Economics 04/10, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    17. Calcagnini, Giorgio & Ferrando, Annalisa & Giombini, Germana, 2014. "Does employment protection legislation affect firm investment? The European case," Economic Modelling, Elsevier, vol. 36(C), pages 658-665.
    18. Jonathan Seaton & Ian Walker, 1997. "Signalling, Disclosure And The Implications Of Financial Structure For Uk Corporate R&D," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 5(1), pages 75-90.
    19. Andrew Benito & Garry Young, 2007. "Financial Pressure and Balance Sheet Adjustment by Firms," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(5), pages 581-602, October.
    20. Jérôme Héricourt & Sandra Poncet, 2007. "FDI and credit constraints: firm level evidence in China," Post-Print halshs-00144621, HAL.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:sprchp:978-3-031-27929-4_23. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.