Saturday, 04 Jul, 2020




A Single Period Stochastic Model for Maximising Firms Value

International Journal of Financial Management

Volume 6 Issue 1

Published: 2016
Author(s) Name: J. P. Singh | Author(s) Affiliation:
Locked Subscribed Available for All


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.

Keywords: Firm Value, Debt Capacity, Capital Structure, Financial Leverage, Capital Markets

View PDF

Refund policy | Privacy policy | Copyright Information | Contact Us | Feedback ©, All rights reserved