NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Valuing the Government's Tax Claim on Risky Corporate Assets

Saman Majd, Stewart C. Myers

NBER Working Paper No. 1553
Issued in February 1985
NBER Program(s):   ME   PE

This paper explores the effects of tax asymmetries on the value of risky capital investments made by corporations.The government's claim on the firm is shown to be equivalent to a portfolio of options on the firm's revenues. The tax law's provisions for carrying tax losses forward and backward are introduced, necessitating a numerical solution for the value ofthe government's claim. The results show that asymmetric taxation of operating gains and losses can significantly affect the after-tax net present value of corporate investment opportunities.

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Document Object Identifier (DOI): 10.3386/w1553

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