Thisvalueisbasedontheimplicitassumptionthatthefirm
cannotdefertaxesfromthispointon.Infact,anevenmore
conservativereading would suggest that we should reduce
thisvaluebytheamountofthecumulateddeferredtaxesfrom
thepast.Thus,ifthefirmhas$200millionindeferredtaxes
fromprioryearsandexpectstopaythesetaxesoverthenext
fouryears in equal annualinstallmentsof $50million, we
would first compute the present value of these tax payments.
The value of the firm would then be $1,794.96 million.
APPROACH 3: Blended Tax Rates
Inthefinalapproach,weassumethattheeffectivetaxwill
remain20%forfiveyearsandweusethemarginaltaxrateto
compute the terminal value:
Note,however,thattheuseoftheeffectivetaxrateforthe
firstfiveyearswillincreasethedeferredtaxliabilitytothe
firm.Assumingthatthefirmendedthecurrentyearwitha