The binomial model, tax savings and adjusted value of the firm by scenarios of continuity or dissolution
DOI:
https://doi.org/10.18046/j.estger.2019.150.2903Keywords:
Binomial model, Tax savings, Liquidation, Continuity, Adjusted valueAbstract
The traditional version of the discounted cash flow model does not include contingent values of tax savings and the scenarios of continuity or dissolution that the firm faces. Based on the real options theory, this paper develops a binomial valuation model that includes the contingent treatment for tax savings and the continuity or dissolution scenarios, conditioned by the level of indebtedness. In order to accomplish this, the methodological approach of case study was used, exposing functional relationships and advantages concerning the discounted cash flow. The results indicate that the value of the firm is adjusted to an exponential-type function. The current value obtained resumes contingent tax savings and dissolution or continuity scenarios.
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