The conventional approach to analysing lease versus buy decisions discounts differential after-tax cash flows at the after tax cost of debt. This involves the assumption that reductions in corporate tax create value for shareholders. Under a dividend imputation system such as has existed

The availability of credit varies over the business cycle through shifts in the leverage of financial intermediaries. Empirically, we find that intermediary leverage is negatively aligned with the banks ’ Value-at-Risk (VaR). Motivated by the evidence, we explore a contracting model that captures the observed features. Under general conditions on the outcome distribution given by extreme value theory (EVT), intermediaries maintain a constant probability of default to shifts in the outcome distribution, implying substantial deleveraging during downturns. For some parameter values, we can solve the model explicitly, thereby endogenizing the VaR threshold probability from the contracting problem. (JEL G01, G23, G32) The availability of credit and how credit varies over the business cycle have been subjects of keen interest, especially in the wake of the financial crisis. Some cyclical variation in total lending is to be expected, even in a frictionless world where the conditions of the Modigliani and Miller (1958) theorem hold. There are more positive net present value (NPV) projects that need funding when the economy is strong than when the economy is weak. Therefore,

of this integrated strategy and eventually announced that it would be spinning off its hospital business under the Galen name. In structuring the transaction, one critical issue that emerged was how to allocate debt and corporate overhead between the two entities. An unsophisticated investor might have followed a

the editor, Andrew Karolyi, and two referees for guidance. An earlier version of this paper was entitled "Financial Intermediary Leverage and Value-at-Risk". The views expressed in this paper are those of the authors and do not necessarily represent those of the Federal Reserve Bank of New York, the Federal Reserve System, or the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

The usual starting point when valuing a firm is to discount the cash flows generated at an appropriate discount rate, reflecting the weighted sources and cost of financing. This composite cost of capital allows thus to calculate the present value of the expected cash flow. This elementary

formulation based on the eight-step approach indicated below and shown in • establish the operating profile; • establish the utilisation factors; • identify all the cost elements; • calculate all costs at current prices; • escalate current costs at assumed inflation rates; • discount all costs to the base

staff position that Opinion 18 requires an investor that owns common (or other voting) stock and also (a) owns debt securities (including mandatorily redeemable preferred stock), (b) owns preferred stock, or (c) has extended loans to the investee to continue to report losses. [Note: See Status

Risk-based capital measures for operational risk management

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