Cash Flow Multipliers and Optimal Investment Decisions

Cash Flow Multipliers and Optimal Investment Decisions

By postulating a simple stochastic process for the firm’s cash flows in which the drift and the variance of the process depend on the investment policy of the firm, we develop a theoretical model, determine the optimal investment policy and, given this policy, calculate the ratio of the current value of the firm and the current cash flow which we call the “cash flow multiplier”. The main contri...

Cash Flow Volatility, Financial Slack and Investment Decisions

Inventory investment and cash flow

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Credit Constraints and Investment-Cash Flow Sensitivities

This paper analyzes the investment behavior of ...rms under a quantity constraint on the amount of external funds which can be raised at a given cost (credit constraints). In this world, investment-cash ‡ow sensitivities decrease in the degree of credit constraints, until a ...rm becomes e¤ectively unconstrained. This generates a “U-shaped” curve for the relationship between sensitivities and c...

The Analytics of Investment , , and Cash Flow ∗

This paper analyzes the relationships among investment, , and cash flow in a tractable stochastic model in which marginal  and average  are identically equal. In the special, but widely used, case of quadratic adjustment costs, it derives an expression for  that is in closed form, up to an additive constant. After analyzing the impact of changes in the distribution of the marginal operating...