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
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