Home  Journals  Finance and Credit  11(635) - 2015 March

Influence of taxation on the optimal investment structure of a telecommunication sector company

Vol. 21, Iss. 11, MARCH 2015

Article PDF Version

Available online: 15 March 2015

Subject Heading: INVESTING

JEL Classification: 

Pages: 33-40

Importance Given the condition of the Russian economy, the problem of influence of the income tax rate of a company on its investment activity becomes quite relevant.
     Objectives This is the third article in a series of articles dealing with the analysis of operations of Nastcom Plus, a telecommunication sector company. We examined the effects of changes in the income tax rates, both upwards and downwards, on the optimal structure of investments with different periods of project life.
     Methods As in previous articles, we made all calculations under the modern theory of cost and structure of capital developed by Brusov, Filatova, and Orekhova. We analyzed investments using the formula, which we developed earlier for the case of constant value of equity capital. We make the analysis from the point of view of the equity capital owners.
     Results The study shows that an increase in the income tax rates leads to degradation (decrease) of NPV, where degradation reduces, if project duration increases. In particular, for a 5-year project (amortization period), if income tax rate increases by 1%, NPV decreases by 1.5%-2.34% in different years. Though a change in the income tax rate has an impact on the optimum (the optimum for 2-year and 10-year projects changes in 2012, and for a five-year project in 2012 (by 0.5-1 (in leverage units)), nevertheless, the position of the optimum is rather stable.
     Conclusions and Relevance We conclude that under conditions of sanctions and stagnation of the economy, development of methods for assessing the effects of income tax rate of an organization on its investment activities plays an important role.

Keywords: taxes, investment projects, arbitrary duration, effectiveness, investment project, leverage level

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