Optimal Dynamic Investment Policies of a Value Maximizing Firm: (330 Lecture Notes in Economics and Mathematical Systems)

This book is a contribution to the area of dynamic models of the firm. In Chapter 1, a general investment decision rule based on the concept of net present value of marginal investment is developed. In chapter 2, the rule is applied in deterministic dynamic models of the firm. This rule can be expressed as follows: If the net present value of marginal investment is positive, it is optimal for the firm to grow as fast as possible; If the net present value of marginal investment is zero, the firm is in its optimal situation and it determines its investment policy to maintain this position; If the net present value of marginal investment is negative, it is optimal for the firm to contract as much as possible. In Chapter 3, the influence of adjustment costs of investment on optimal dynamic firm behaviour is studied. To that end, models with convex and concave adjustment cost functions are developed and analysed by using the investment decision rule described above. In Chapter 4, the stochastic dynamic theory of the firm is extended by connecting it with the Intertemporal Capital Asset Pricing Model (ICAPM) developed by Merton.

Table of Contents:
1. Introduction.- 1.1. Scope of the Book.- 1.2. The Net Present Value in the Theory of Corporate Finance.- 1.3. Review of Dynamic Models of the Firm.- 1.4. Outline of the Book.- 2. The Net Present Value in Dynamic Models of the Firm.- 2.1. Introduction.- 2.2. The Net Present Value in a Model with the Possibility of Debt Financing.- 2.3. The Net Present Value in a Model with Activity Analysis.- 2.4. The Net Present Value in a Model with Corporate and Personal Taxation.- 2.5. The Net Present Value in a Model with a Growing Economic Environment.- 2.6. Summary.- 3. The Net Present Value in Dynamic Adjustment Cost Models of the Firm.- 3.1. Introduction.- 3.2. The Theory of Adjustment Costs.- 3.3. A Dynamic Model of the Firm with a Financial Structure and a Convex Adjustment Cost Function.- 3.4. Dynamic Firm Behavior under a Concave Adjustment Cost Function.- 3.5. Summary.- 4. Dynamic Firm Behavior within an Uncertain Environment.- 4.1. Introduction.- 4.2. A Stochastic Dynamic Model of a Profit Maximizing Firm.- 4.3. A Stochastic Dynamic Model under the Assumption of Risk-Averse Investor Behavior.- 4.4. Summary.- 5. Conclusions.- Appendix 1. Solutions of The Models of Chapter 2.- A1.1. The Model with the Possibility of Debt Financing.- A1.1.1. The Optimal Trajectories.- A1.1.2. The Net Present Value Formulas.- A1.2. The Model with Activity Analysis.- A1.2.1. The Optimal Trajectories.- A1.2.2. A Comparison with the Results of Van Loon.- A1.2.3. The Net Present Value Formulas.- A1.3. The Model with Corporate and Personal Taxation.- A1.3.1. The Optimal Trajectory.- A1.3.2. A Comparison with the Results of Van Schijndel.- A1.3.3. The Net Present Value Formulas.- A1.4. The Model with a Growing Economic Environment.- A1.4.1. The Optimal Trajectory.- A1.4.2. The Net Present Value Formulas.- Appendix 2. Solutions of the Models of Chapter 3.- A2.1. The Model with a Financial Structure and a Convex Adjustment Cost Function.- A2.1.1. The Optimal Trajectories.- A2.1.2. The Net Present Value Formulas.- A2.1.3. Extension of the Planning Period.- A2.1.4. The Case of an Infinite Time Horizon.- A2.2. The Model with a Linear Adjustment Cost Function.- A2.3. The Model with Concave Adjustment Costs and Impulse Controls.- Appendix 3. The Additional Solutions and Mathematical Proofs of Chapter 4.- A3.1. The Model of a Profit Maximizing Firm.- A3.2. The Model under the Assumption of Risk-Averse Investor Behavior.- List of Symbols.- References.