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nbbo2
nbbo2
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Assuming the company does not default, the equity holders receive the benefit of the tax shield as an annuity. That means, as you suggested, one should discount the tax shield at the cost of debt. But, equity holders receive profits after tax, which implies using the after-tax borrowing rate. See the Holthausen and Zmijewski textbooktextbook for a more complete discussion.

Assuming the company does not default, the equity holders receive the benefit of the tax shield as an annuity. That means, as you suggested, one should discount the tax shield at the cost of debt. But, equity holders receive profits after tax, which implies using the after-tax borrowing rate. See the Holthausen and Zmijewski textbook for a more complete discussion.

Assuming the company does not default, the equity holders receive the benefit of the tax shield as an annuity. That means, as you suggested, one should discount the tax shield at the cost of debt. But, equity holders receive profits after tax, which implies using the after-tax borrowing rate. See the Holthausen and Zmijewski textbook for a more complete discussion.

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michaelcarniol
michaelcarniol
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Assuming the company does not default, the equity holders receive the benefit of the tax shield as an annuity. That means, as you suggested, one should discount the tax shield at the cost of debt. But, equity holders receive profits after tax, which implies using the after-tax borrowing rate. See the Holthausen and Zmijewski textbook for a more complete discussion.