Monte Carlo Corporate Finance Demo

Corporate Tax, Firm Value, and Survival Under Uncertainty

This simulation examines how different corporate tax rates influence firm value, profits, and tax collections when revenue is uncertain and leverage changes over time.

The model runs a large number of random business paths. In each path, annual revenue moves around a user-defined average, interest expense depends on debt, and losses can push the firm into deeper leverage while profits can repair the balance sheet.

The result is more than a simple tax calculator. It is a small balance-sheet model that shows why tax revenue may become nonlinear when higher taxes reduce retained earnings and increase financial fragility.

What to look for

1
Government revenue: does a higher tax rate always raise more present-value tax receipts?
2
Firm value: how much discounted equity value is lost as tax pressure rises?
3
Profit volatility: how dispersed are outcomes when revenue uncertainty increases?
4
Weighted taxes: how much tax survives after adjusting for the likelihood that the project remains economically viable?

Model assumptions

Edit the inputs, then run the simulation.
Default tax rates tested: 5%, 10%, 15%, 20%, 30%, 40%, and 50%.

Economic intuition

Higher tax rates reduce retained earnings, which can slow balance-sheet repair after weak years. In a leveraged firm, that can increase future interest burden and impair value.

What “weighted tax” means

Weighted tax scales tax collections by a probability-like survival adjustment based on the project’s profit performance relative to its initial investment hurdle.

How to read the histograms

Each histogram shows the distribution of simulated outcomes for one tax rate. Wider shapes mean more uncertainty. Lower centers imply weaker average economics.

Summary across tax rates

Average results from the full Monte Carlo simulation.
Run the simulation to generate summary charts.

Distribution of outcomes by tax rate

Detailed histograms for firm value, profit, taxes, and weighted taxes.
Run the simulation to generate the distribution panels.
Interpretation note: This is an illustrative model, not a forecast. It is best used to compare scenarios and build intuition about how taxes, leverage, revenue volatility, and discounting interact in a capital-intensive firm.