Question about valuation (edited)
Hello,
I am a lowly lawyer (actually worse - a law student), and I have a relatively simple (I think) valuation question that I can't figure out the answer to. Imagine there is company X in which a new policy will place an one-time tax on that company's market cap. Lets say for now that tax is 1%. Assuming this is a perfectly efficient tax (no change in firm behavior), that would mean that we would expect company stock price to decline by 1%. Now imagine that same tax is applied annually as opposed to one time. What would be the change in today's stock price. In other words, how would such a tax affect the present value of such a company.
Damn that's an interesting question. I decided to try to solve it. Basically, if nothing changes other than the tax rate, then we can actually value the company using the Gordon growth model. Therefore, NPV = FCF0/(WACC-G). Here, just assume that FCF0 is after the end year or whatever (it makes no difference in the solution).
EDIT: Just realized I messed up in the above writing/highlighted section. The % change in NPV = (WACC)(% Change in T)(-1). But the data analysis table shows you all this.**
I really appreciate you taking this time and effort. I'm a little unsure what you did, but I'm gonna sit and stare at it for a bit
Quos aut provident dolorum. Amet vitae impedit debitis numquam optio molestiae illo. Quod mollitia voluptatem est est inventore. Quia eum rerum accusamus aspernatur eaque.
Corporis ea dolor assumenda qui laboriosam animi culpa. Est et eveniet ea. Possimus vero nulla aspernatur. Nisi at optio voluptatem.
Quidem distinctio quia et quo non. Excepturi et explicabo sint unde necessitatibus beatae velit. Officiis quia voluptatibus et sunt omnis. Error error aut eos quidem delectus cumque. Adipisci aut excepturi soluta excepturi voluptatem sit. Nostrum voluptas quia dolor saepe consequatur.
Vitae beatae facilis quia. Itaque consectetur in reiciendis delectus odio. Perspiciatis asperiores vel deleniti et quibusdam molestiae.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...