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Target Rates of Return and Corporate Asset and Liability Structure Under Uncertainty

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  • Litzenberger, R. H.
  • Joy, O. M.

Abstract

This paper examines the multiperiod capital allocation problem of a corporate division that is subject to ex post financial scrutiny by the parent corporation based upon meeting a specified target rate of return on investment. Using a zero-order decision rule, a deterministic equivalent linear programming model is developed to solve for the division's optimal mix of productive assets and the maturity structure of its debt.

Suggested Citation

  • Litzenberger, R. H. & Joy, O. M., 1971. "Target Rates of Return and Corporate Asset and Liability Structure Under Uncertainty," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 6(2), pages 675-686, March.
    • Handle: RePEc:cup:jfinqa:v:6:y:1971:i:02:p:675-686_02
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