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
Quo reiciendis exercitationem pariatur blanditiis et et. Quia ut officiis non iure dolorum possimus. Alias error et ex molestiae eligendi vero deserunt.
Dolor aut itaque iste velit hic. Delectus facilis possimus consequatur doloribus earum. Non expedita dolorem accusamus eveniet inventore.
Dolor ratione ipsa sed deserunt. Cumque distinctio quae provident accusamus. Aut recusandae magni voluptates dolore dicta.
Porro molestiae cum laborum. Est omnis voluptatum ut praesentium qui.
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...