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ИД «Финансы и кредит»






Finance and Credit

Modern investment models with uniform debt repayment and their application

Vol. 21, Iss. 9, MARCH 2015

PDF  Article PDF Version

Available online: 28 February 2015

Subject Heading: INVESTING

JEL Classification: 

Pages: 21-27

Brusov P.N. Financial University under Government of Russian Federation, Moscow, Russian Federation

Filatova T.V. Financial University under Government of Russian Federation, Moscow, Russian Federation

Orekhova N.P. Institute of Management, Business and Law, Rostov-on-Don, Russian Federation

Kulik V.L. Financial University under Government of Russian Federation, Moscow, Russian Federation

Earlier, the authors created investment models with debt repayment at the end of project. The models proved to be successful in the analysis of efficiency of real investment projects. In this work, the authors have created new investment models with uniform repayment of debt over the project life. The new models adequately describe real investment projects. Specifically, under these models it is possible to analyze the dependence of investment projects' efficiency on debt financing and taxation. The authors consider the issue as part of the modern theory of capital cost and structure, which have been developed by P.N. Brusov, T.V. Filatova and N.P. Orekhova, and within the perpetuity limit. The authors developed the method of assessing the impact of income tax rate on the net present value (NPV). The study shows that growing income tax rate causes a decrease in the project NPV, and enables to estimate the percentage of the decrease. The possibility of such estimations is unique. It turns out that the effect of taxation on NPV depends on the level of leverage: if it increases, the impact of changes in the income tax rate is significantly reduced. This applies both to an increase and a decrease of the rate; meanwhile, both these options have practical value in the current economic conditions. The authors have investigated how the income tax rate influences the optimal investment structure. Under the existing (20%) and higher (25%) rate of income tax, there is an optimum of NPV dependence on leverage. Investors should consider the structure of invested capital: they will be able without special effort to gain in NPV (sometimes very significant) only by changing this structure.

Keywords: investment models, uniform debt repayment, effectiveness, investment project, leverage level


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