A Single Period Stochastic Model for Maximising Firms Value
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This article sets up a single period value maximization model for the firm based on stochastic end-of-period cash inflows, stochastic bankruptcy costs and taxes based on income rather than wealth. The risk-return trade-off is captured in the Capital Asset Pricing Model. Thus, the model also assumes a perfect capital market and market equilibrium. The model establishes the existence of a unique optimal financial leverage at which the firm value is maximized, this leverage being less than the maximum debt capacity of the firm.
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2005 ◽
Vol 1
(2)
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pp. 1-12
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2012 ◽
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2019 ◽
Vol 24
(4)
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pp. 305-322
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