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From traditional point of view, the most important stockholder-oriented financial objective of a firm is to maximize firm's shares market price and traditional researches analyze the effects of each financing variable on the firm's share market price. Because in reality, financing problems are naturally complex with multiple conflicting objectives, Goal Programming (GP) is applied. In this paper, a simple single-period single-objective model and for complex multi-period problems, a MIGP model is introduced. MIGP explains how to satisfy at the highest level the firm's stockholder-oriented goals. Since any financing planning without considering future investment opportunities is just an oversimplification, the model allows to evaluate these opportunities and analyze their effects on the optimal financing solution and goal achievements. Finally, it is aimed to illustrate the formulation process by a numerical example indicating how MIGP model allows to consider both internal and external financing sources.
THREE MAJOR FINANCIAL questions that a financial manager should answer are: 1) What specific assets should a firm acquire? 2) What is the total volume of funds that a firm should commit?, and 3) How should the required funds be financed? The first two questions jointly will be referred to investment decisions and the third one to financing.
According to financial theory, the most important stockholder-oriented objective of a firm is to maximize the market value of the firm's shares. Maximization requires to predict the effects of proposed financing alternatives on the share price and predictions, in turn, require analyzing the effects of decision variables. Traditional studies consider financial leverage, dividend policy, risk and uncertainty, cost of financing, Earning Per Share (EPS), and mixture of financing as financial variables analyze the effects of each variable on the firm's value. In reality, financing problems are naturally complex and consist of several and mostly conflicting objectives. Also, it is well known that any financial planning without considering investment opportunities is just an oversimplification. On the other hands, financing and investment decisions affect on each other while dividend policy affects on both of them. In such a situation, traditional studies are not able to incorporate financial manager's preferences effectively.
This paper is aimed to introduce an MIGP model for multi-period complex corporate financing problems. It provides an optimal simultaneous solution. The solution...