Kulik V.L.Financial University under Government of Russian Federation, Moscow, Russian Federation venya.kulik@mail.ru
Importance The current condition of the Russian economy enhances the relevance of the issue of corporate profit tax impact on a company's investment activity. Objectives The paper examines the effect of changes in the rate of corporate profit tax on investment efficiency, and aims at detecting the anomalies of the influence. Methods We made all calculations within the modern theory of capital cost and capital structure developed by Brusov, Filatova, and Orekhova, and under our unique modern investment models. We consider the matter from the viewpoint of equity capital owners, and equity and debt capital owners. In the analysis of long-term projects, we use equity value or WACC calculated by Modigliani and Miller, as a discount rate. When analyzing projects with arbitrary duration, the discount rate is the cost of capital obtained under the Brusov - Filatova - Orekhova theory. Results We show that in both cases, i.e. in long-term projects and projects with optional duration, an increase in the rate of corporate profit tax changes the nature of the NPV dependence on leverage at some value of t* : there is a transition from the decreasing function NPV(L), when t < t* , to the increasing function NPV(L), when t > t*b . At higher leverage levels, we observe a qualitatively new effect in investments, i.e. the growth of investment efficiency as the rate of corporate profit tax goes up. Conclusions and Relevance The discovered qualitatively new effects in investments are very important from a theoretical viewpoint, and may lead to qualitatively new managerial decisions on investment optimization.
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