APV and dividends

[Speku]

Hi there,
I have a question regarding a company valuation. The company has a lot of cash and no debt. To benefit from the tax shield I think it would make sense to take on debt and pay out a dividend. However I am not sure how that would impact the company valuation.
Would that mean to do a company valuation and add the discount value of the dividends paid out?
Many thanks.
Cheers

 

[krokodilizm]

The idea seems weird to me and it should lower the company value. You give up the best source of funding (retained earnings) to acquire debt just for the sake of tax shield. Thats like saying “duty free shopping is the smartest thing: the more you spend the more you save”.
Issuing high dividends sounds lucrative but it isnt sustainable, it isn’t earnings related.