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Risk adjustment, investment policy, and valuation for an unlevered firm

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Author Info

  • Angelica Gianfreda

    ()

  • Alessandro Sbuelz

    ()
    (Corresponding author, Dipartimento di Scienze economiche (Università di Verona))

Abstract

We characterize the optimal investment decision and the stock value of an unlevered firm that holds the non-standard option of improving the growth rate of cashflows from its assets in place upon incurring an irreversible cost. The firm's investment policy and equity price are studied as a function of the market price of risk, of cashflow's exposure to systematic risk, and of cashflow volatility.

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File URL: http://dse.univr.it/RePEc/ver/Wpaper/WP49.pdf
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Bibliographic Info

Paper provided by University of Verona, Department of Economics in its series Working Papers with number 49.

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Length: 11
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:ver:wpaper:49

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Keywords: Investment; Equity pricing; Market price of risk.;

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