4.2. Expected Tax RateThe study by

4.2. Expected Tax RateThe study by [18] proposed a model (rationale for hedging) to maximize the post-tax value of the firm and said that post-tax value function is a concave function of its pre-tax value. Another study [19] also studied the tax implications, demonstrating a firm hedging its production decision or tax credits to increase its value. How does the way by which hedging works here? It is given in [18] that when cost of hedge is not included, a firm’s marginal tax rate is an increasing function firm’s pre-tax value, then the expected corporate tax liability is reduced and expected post-tax value of firm is increased. When hedging cost is included, value of firm increases till cost of hedging is less than benefits obtained. There can be some other possibilities depending upon the shape of tax as function of cash flow.