Publication: Cost of capital and valuation in the public and private sectors: tax, risk, and debt capacity
Cost of capital and valuation in the public and private sectors: tax, risk, and debt capacity
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Brealey, R. A., Cooper, I. A., & Habib, M. A. (2020). Cost of capital and valuation in the public and private sectors: tax, risk, and debt capacity. Journal of Business Finance and Accounting, 47, 163–187. https://doi.org/10.1111/jbfa.12413
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Cost of capital and valuation differ in the private and public sectors, because taxes are a cost to the private sector but are only a transfer to the private sector. We show how to transform the after‐tax private sector cost of capital into its pre‐tax equivalent, for comparison with the public sector cost of capital. We establish the existence of a tax induced wedge between these two costs of capital. The wedge introduces a preference on the part of the private sector for assets with rapid tax depreciation, high debt capacity, and lo
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- Brealey, Richard A
- Cooper, Ian A
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Brealey, R. A., Cooper, I. A., & Habib, M. A. (2020). Cost of capital and valuation in the public and private sectors: tax, risk, and debt capacity. Journal of Business Finance and Accounting, 47, 163–187. https://doi.org/10.1111/jbfa.12413
