This paper uses an option valuation model of the firm to answer the question, “What magnitude tax advantage to debt is consistent with the range of observed corporate debt ratios?” We incorporate into the model differential personal tax rates on capital gains and ordinary income. We conclude that variations in the magnitude of bankruptcy costs across firms can not by itself account for the simultaneous existence of levered and unlevered firms. When it is possible for the value of the underlying assets to jump discretely to zero, differences across firms in the probability of this jump can account for the simultaneous existence of levered and unlevered firms. Moreover, if the tax advantage to debt is small, the annual rate of return advantage offered by optimal leverage may be so small as to make the firm indifferent about debt policy over a wide range of debt‐to‐firm value ratios.

This paper uses an option valuation model of the firm to answer the question, "What magnitude tax advantage to debt s consistent with the range of observed corporate debt ratios?"We incorporate into the model differential personal tax rates on capital gains and ordinary income.We conclude that variations in the magnitude of bankruptcy costs across firms can not by itself account for the simultaneous existence of levered and unlevered firms.When it is possible for the value of the underlying assets to junip discretely to zero, differences across firms in the probability of this jump can account for the simultaneous existence of levered and unlevered firms.Moreover, if the tax advantage to debt is small, the annual rate of return advantage offered by optimal leverage may be so small as to make the firm indifferent about debt policy over a wide range of debt-to-firm value ratios.

This paper develops an equilibrium model in which informational asymmetries about the qualities of products offered for sale are resolved through a mechanism which combines the signalling and costly screening approachs. The model is developed in the context of a capital market setting in which bondholders produce costly information about a firm's priori imperfectly known earnings distribution and use this information in specifyihng a bond valuation schedule to the firm. Given this schedule, the firm's optimal choices of debt-equity ratio and debt maturity structure subsequently signal to prospective shareholders the relevant parameters of the firm's earnings distribution.

This paper develops an equilibrium model in which informational asymmetries about the qualities of products offered for sale are resolved through a mechanism which combines the signalling and costly screening approaches. The model is developed in the context of a capital market setting in which bondholders produce costly information about a firm's a priori imperfectly known earnings distribution and use this information in specifying a bond valuation schedule to the firm. Given this schedule, the firm's optimal choices of debt‐equity ratio and debt maturity structure subsequently signal to prospective shareholders the relevant parameters of the firm's earnings distribution.

Partial table of contents: THE ANALYTICAL FRAMEWORK. The American Real Estate Industry: An Overview. Regional and Urban Economics. Spatial Economics: Rent, Situs, and Succession Theory. THE LEGAL ENVIRONMENT. Real Estate Interests and Forms of Ownership. Transferring Real Estate Interests. VALUATION AND THE APPRAISAL PROCESS. The Sales Comparison Approach and the Cost Approach. MARKETING, BROKERAGE, AND MANAGEMENT. Marketing. Brokerage. Asset Management: The Property Management Perspective. REAL ESTATE FINANCE. The Financial System and Real Estate Finance. Financing Mechanics: The Borrower's Perspective. Mortgage Underwriting: The Lender's Perspective. The Secondary Mortgage Markets. REAL ESTATE TAXATION. Income and Property Taxation. INVESTMENT ANALYSIS. Principles of Investment. The Discounted Cash-Flow Model. REAL ESTATE DEVELOPMENT. Land Use Feasibility Analysis. PUBLIC POLICY AND PROSPECTS FOR THE FUTURE. Government Involvement. Appendix. Compound Interest Tables. Glossary. Index.