TY  - JOUR
AU  - Grinblatt,Mark
AU  - Liu,Jun
TI  - Debt Policy, Corporate Taxes, and Discount Rates
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9353
PY  - 2002
Y2  - November 2002
UR  - http://www.nber.org/papers/w9353
L1  - http://www.nber.org/papers/w9353.pdf
N1  - Author contact info:
Mark Grinblatt
UCLA
Anderson Graduate School of Management
110 Westwood Plaza, Box 951481
Los Angeles, CA  90095-1481
Tel: 310/825-1098
Fax: 310/206-5455
E-Mail: mark.grinblatt@anderson.ucla.edu

Jun Liu
Rady School of Management
UCSD
Pepper Canyon Hall Room 320
9500 Gilman Dr MC 0093
La Jolla CA 92093
Tel: 310/825-4083
E-Mail: junliu@ucsd.edu
AB  - This paper studies the valuation of assets with debt tax shields when debt policy is a general time-dependent function of the asset's unlevered cash flows, value, and history. In a continuous-time setting, it shows that the value of a project's debt tax shield satisfies a partial differential equation, which simplifies to an easily solved ordinary differential equation for most plausible debt policies. A large class of cases exhibits closed-form solutions for the value of a levered asset, the value of its tax shield, and the appropriate tax-adjusted cost of capital for discounting unlevered cash flows.
ER  -