(A) dynamic optimal policy based on interaction of corporate financing and investment decision

Abstract

In this study, we have developed a model of a firm which describes optimal investment, financial and dividend policies under the situation when there exist the different rate of return in each project over time, the constrained dividend and the restricted borrowing amount according to the firm``s leverage policy and borrowing rate. Also, using the utility function of the uncertain rate of return, we show how the investment policy and financial structure are affected by riskattitude of investment scale for the uncertain rate of return over time. In addition, as firm``s leverage changes, the effects of investment policy and borrowing are mentioned. On the other hand, when the firm faces the finite investment opportunities with the different rate of return of each investment opportunities, we show that investment policy is determined by the return on investment depending on the rate of return and investment scale.