The impact of taxation on upper and lower bounds of enterprise value

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Abstract

This paper derives and draws on simple formulae for the upper and lower bounds to the value of a series of risky cash flows in order to provide some instructive insights in the impact of taxation on these bounds.
The formulae are based on no-arbitrage conditions in a setting that is a straightforward extension of the Cox, Ross, and Rubinstein option-pricing model to an incomplete market model and look exactly like the popular Gordon growth formula.
Although based on stylized facts concerning the tax scheme the results promise to be a reliable guide for further research in this field.

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