Firm Value and the Debt-Equity Choice
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Author
Hull, Robert M.
Publisher
Washburn University. School of Business
Sponsor
Kaw Valley Bank
Issue Date
August 2004
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Abstract
This paper offers gain to leverage formulations showing how changes in equity and debt discount rates influence firm value. Applications of these formulations illustrate the impact on firm value with risk-free debt and only corporate taxes, with risky debt and only corporate taxes, and with risky debt and both corporate and personal taxes. To the extent changes in discount rates can be adequately estimate, this paper provides financial managers with practical formulations that can be used when they make their debt-equity choices.