Equity valuation, production, and financial planning: A stochastic programming approach

Most of the operations management literature assumes that a firm can always finance production decisions at an optimal level or borrow at a constant interest rate; however, operational decisions are constrained by limited capital and often critically depend on external financing. This paper proposes an integrated corporate planning model, which extends the forecasting-based discount dividend pricing method into an optimization-based valuation framework to make production and financial decisions simultaneously for a firm facing market uncertainty. We also develop an efficient algorithm to solve the resulting integer stochastic programming model with nonlinear constraints. Compare