The valuation of a firm advertising optimally
AbstractIn this paper we model the value of a firm based on its current earnings and cash balances. The value is modelled on the assumption that earnings follow a mean-reverting process. The effect of advertising on earnings is modelled, and the condition for optimal advertising derived. The value of the firm is derived as the solution to a partial differential equation. The way in which this value depends on the legal structure and banking arrangements of the firm is discussed.
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Bibliographic InfoArticle provided by Elsevier in its journal The Quarterly Review of Economics and Finance.
Volume (Year): 38 (1998)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/inca/620167
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