The problem of these approaches is
that they might not reflect the correct
cost of debt and conceal the actual tax
savings earned when valuing a cash
flow with a discount rate that takes
into account the tax shields (Tham
& Vélez-Pareja, 2004; Vélez-Pareja
& Benavides, 2006; Vélez-Pareja,
Ibragimov y Tham, 2008). In this work the differences when using
those approaches are shown and a
simple proposal to solve the problem
is shown.
The document is organized as follows:
Section One presents four possible
approaches to solve this situation.
Section Two presents a simple example
for quarterly and monthly interest
charges and compares the differences
among the four approaches. Section
Three concludes.