Disparate Objectives

Abstract

Given the existence of zero and low tax investors willing to buy debt, finance theory suggests that the relationship

$$ {V_L} = {V_u} + {t_c}B $$

(1)

is reasonably indicative of the consequences of substituting debt for equity. If (math) for all investors then the more complex relationship

$$ {V_L} = {V_u} + B\left[ {1 - \frac{{(1 - {t_c})(c - {t_s})}}{{1 - {t_p}}}} \right] $$

(2)

simplifies to equation (1).