An Exact Solution For The Investment And Market Value Of A Firm Facing Uncertainty Adjustment Costs And Irreversibility
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An Exact Soultion For The Investment And Market Value Of A Firm Facing Uncertainty Adjustment Costs And Irreversibility
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Author : Janice C. Eberly
language : en
Publisher:
Release Date : 1998
An Exact Soultion For The Investment And Market Value Of A Firm Facing Uncertainty Adjustment Costs And Irreversibility written by Janice C. Eberly and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1998 with categories.
This paper derives closed-form solutions for the investment and market value, under uncertainty, of competitive firms with constant returns to scale production and convex costs of adjustment. Solutions are derived for the case of irreversible investment as well as for reversible investment. Optimal investment is a non-decreasing function of q, the shadow value of capital. The conditions of optimality imply that q cannot contain a bubble; thus, optimal investment depends only on fundamentals. However, the value of the firm may contain a bubble that does not affect investment behavior. Relative to the case of reversible investment, the introduction of irreversibility does not affect q, but it reduces the fundamental market value of the firm.
An Exact Solution For The Investment And Market Value Of A Firm Facing Uncertainty Adjustment Costs And Irreversibility
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Author : Andrew B. Abel
language : en
Publisher:
Release Date : 1993
An Exact Solution For The Investment And Market Value Of A Firm Facing Uncertainty Adjustment Costs And Irreversibility written by Andrew B. Abel and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1993 with Capital stock categories.
This paper derives closed-form solutions for the investment and market value, under uncertainty, of competitive firms with constant returns to scale production and convex costs of adjustment. Solutions are derived for the case of irreversible investment as well as for reversible investment. Optimal investment is a non-decreasing function of q, the shadow value of capital. The conditions of optimality imply that q cannot contain a bubble; thus, optimal investment depends only on fundamentals. However, the value of the firm may contain a bubble that does not affect investment behavior. Relative to the case of reversible investment, the introduction of irreversibility does not affect q, but it reduces the fundamental market value of the firm.
An Exact Solution For The Investment And Market Value Of A Firma Facing Uncertainty Adjustment Costs And Irreversibility
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Author : Andrew B. Abel
language : en
Publisher:
Release Date : 1993
An Exact Solution For The Investment And Market Value Of A Firma Facing Uncertainty Adjustment Costs And Irreversibility written by Andrew B. Abel and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1993 with categories.
Irreversibility Uncertainty And Investment
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Author : Robert S. Pindyck
language : en
Publisher: World Bank Publications
Release Date : 1989
Irreversibility Uncertainty And Investment written by Robert S. Pindyck and has been published by World Bank Publications this book supported file pdf, txt, epub, kindle and other format this book has been release on 1989 with Capital investments categories.
Irreversible investment is especially sensitive to such risk factors as volatile exchange rates and uncertainty about tariff structures and future cash flows. If the goal of macroeconomic policy is to stimulate investment, stability and credibility may be more important than tax incentives or interest rates.
The Economics Of Inaction
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Author : Nancy L. Stokey
language : en
Publisher: Princeton University Press
Release Date : 2009
The Economics Of Inaction written by Nancy L. Stokey and has been published by Princeton University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with Business & Economics categories.
In The Economics of Inaction, leading economist Nancy Stokey shows how the tools of stochastic control can be applied to dynamic problems of decision making under uncertainty when fixed costs are present. Stokey provides a self-contained, rigorous, and clear treatment of two types of models, impulse and instantaneous control. She presents the relevant results about Brownian motion and other diffusion processes, develops methods for analyzing each type of problem, and discusses applications to price setting, investment, and durable goods purchases."--Pub. desc.
A Stochastic Control Framework For Real Options In Strategic Evaluation
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Author : Alexander Vollert
language : en
Publisher: Springer Science & Business Media
Release Date : 2012-12-06
A Stochastic Control Framework For Real Options In Strategic Evaluation written by Alexander Vollert and has been published by Springer Science & Business Media this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-12-06 with Mathematics categories.
The theoretical foundation for real options goes back to the mid 1980s and the development of a model that forms the basis for many current applications of real option theory. Over the last decade the theory has rapidly expanded and become enriched thanks to increasing research activity. Modern real option theory may be used for the valuation of entire companies as well as for particular investment projects in the presence of uncertainty. As such, the theory of real options can serve as a tool for more practically oriented decision making, providing management with strategies maximizing its capital market value. This book is devoted to examining a new framework for classifying real options from a management and a valuation perspective, giving the advantages and disadvantages of the real option approach. Impulse control theory and the theory of optimal stopping combined with methods of mathematical finance are used to construct arbitrarily complex real option models which can be solved numerically and which yield optimal capital market strategies and values. Various examples are given to demonstrate the potential of this framework. This work will benefit the financial community, companies, as well as academics in mathematical finance by providing an important extension of real option research from both a theoretical and practical point of view.
Investment Under Uncertainty
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Author : Robert K. Dixit
language : en
Publisher: Princeton University Press
Release Date : 2012-07-14
Investment Under Uncertainty written by Robert K. Dixit and has been published by Princeton University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-07-14 with Business & Economics categories.
How should firms decide whether and when to invest in new capital equipment, additions to their workforce, or the development of new products? Why have traditional economic models of investment failed to explain the behavior of investment spending in the United States and other countries? In this book, Avinash Dixit and Robert Pindyck provide the first detailed exposition of a new theoretical approach to the capital investment decisions of firms, stressing the irreversibility of most investment decisions, and the ongoing uncertainty of the economic environment in which these decisions are made. In so doing, they answer important questions about investment decisions and the behavior of investment spending. This new approach to investment recognizes the option value of waiting for better (but never complete) information. It exploits an analogy with the theory of options in financial markets, which permits a much richer dynamic framework than was possible with the traditional theory of investment. The authors present the new theory in a clear and systematic way, and consolidate, synthesize, and extend the various strands of research that have come out of the theory. Their book shows the importance of the theory for understanding investment behavior of firms; develops the implications of this theory for industry dynamics and for government policy concerning investment; and shows how the theory can be applied to specific industries and to a wide variety of business problems.
The Investment Decisions Of Firms
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Author : S. J. Nickell
language : en
Publisher: Welwyn : Nisbet ; Cambridge : Cambridge University Press
Release Date : 1978
The Investment Decisions Of Firms written by S. J. Nickell and has been published by Welwyn : Nisbet ; Cambridge : Cambridge University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 1978 with Business & Economics categories.
Dynamical Corporate Finance
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Author : Umberto Sagliaschi
language : en
Publisher: Springer Nature
Release Date : 2021-07-29
Dynamical Corporate Finance written by Umberto Sagliaschi and has been published by Springer Nature this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021-07-29 with Business & Economics categories.
The way in which leverage and its expected dynamics impact on firm valuation is very different from what is assumed by the traditional static capital structure framework. Recent work that allows the firm to restructure its debt over time proves to be able to explain much of the observed cross-sectional and time-series variation in leverage, while static capital structure predictions do not. The purpose of this book is to re-characterize the firm’s valuation process within a dynamical capital structure environment, by drawing on a vast body of recent and more traditional theoretical insights and empirical findings on firm evaluation, also including asset pricing literature, offering a new setting in which practitioners and researchers are provided with new tools to anticipate changes in capital structure and setting prices for firm’s debt and equity accordingly.
The Effects Of Irreversibility And Uncertainty On Capital Accumulation
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Author : Andrew B. Abel
language : en
Publisher:
Release Date : 1995
The Effects Of Irreversibility And Uncertainty On Capital Accumulation written by Andrew B. Abel and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1995 with Capital categories.
When investment decisions cannot be reversed and returns to capital are uncertain, the firm faces a higher user cost of capital than if it could reverse its decisions. This higher user cost tends to reduce the firm's capital stock. Opposing this effect is the irreversibility constraint itself: when the constraint binds, the firm would like to sell capital but cannot. This effect tends to increase the firm's capital stock. We show that a firm with irreversible investment may have a higher or a lower expected capital stock, even in the long run, compared to an otherwise identical firm with reversible investment. Furthermore, an increase in uncertainty can either increase or decrease the expected long-run capital stock under irreversibility relative to that under reversibility. However, changes in the expected growth rate of demand, the interest rate, the capital share in output, and the price elasticity of demand all have unambiguous effects.