An Integrated Model for the Cost-Minimizing Funding of Corporate Activities over Time
Journal Title: Review of Economics & Finance - Year 2016, Vol 6, Issue 4
Abstract
To enhance the value of a firm, the firm’s management must attempt to minimize the total discounted cost of financing over a planning horizon. Unfortunately, the variety of sources of funds and the constraints that may be imposed on accessing funds from any one source make this exercise a difficult task. The model presented and illustrated here accomplishes this task considering issuing new equity and new bonds, refunding the bonds, borrowing short-term from financial institutions, temporarily parking surplus funds in short-term securities, repurchasing its stock, and retaining part or all of a firm’s earnings. The proportions of these sources of funds are determined subject to their associated costs and various constraints such as not exceeding a specific debt/equity ratio and following a stable dividend policy, among others.
Authors and Affiliations
Manak C. Gupta
Keywords
Related Articles
- EP ID EP259764
- DOI -
- Views 107
- Downloads 0
Asymmetric Effects on Financial Cycles in a Monetary Union with Diverging Country Preferences for Variable- and Fixed-Rate Mortgages
Before as well as at the time when the European Monetary Union (EMU) was launched, a number of economists were discussing possible asymmetrical effects of monetary transmission stemming from apparent structural differenc...
Fiscal Policy and Income Distribution: Measurement for Argentina 1995 – 2010
This paper studies the effect of consolidated –national and provincial– fiscal policy on personal income distribution in Argentina, building a novel panel data for 1995-2010. We find that fiscal policy reduces income ine...
Leverage Certificates - A Case of Innovative Financial Engineering
This paper introduces a new financial product named Leverage Certificates and provides detailed descriptions of the product specifications. We show that the payoff of a Leverage Certificate can be duplicated with a portf...
Portfolio Optimization Using Multivariate t-Copulas with Conditionally Skewed Margins
Over the last few decades, copulas have consistently gained significance in finance research, due to their usefulness in risk modeling. However, the idea of implicitly representing dependencies between multiple assets in...
Measuring the Cost of Financial Integration in the GCC: Lessons from the Global Crisis
In the wake of the global financial crisis, several leading countries of the Gulf Cooperation Council (GCC) experienced considerable economic slowdown. Equity prices tumbled, bank credit dried up, GDP growth rates came t...