Capital budgeting,valuation and personal taxes

This paper examines the relationship between before tax and after tax valuation and uses this to examine the literature on capital budgeting and capital structure in the presence of corporate and personal taxes, a literature which features a bewildering array of valuation formulae. Some of the variation between such formulae naturally arises out of variations in underlying model assumptions; however, in several cases, it arises because there are (by no means obvious) internal inconsistencies. The potential magnitude of the errors that might arise in a capital budgeting context is then explored through sensitivity analysis.