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

Angelica Gianfreda and Alessandro Sbuelz ()
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Alessandro Sbuelz: Corresponding author, Dipartimento di Scienze economiche (Università di Verona)

No 49/2008, Working Papers from University of Verona, Department of Economics

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.

Keywords: Investment; Equity pricing; Market price of risk. (search for similar items in EconPapers)
JEL-codes: C6 E2 (search for similar items in EconPapers)
Pages: 11
Date: 2008-10
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