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
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