Influence of finansing policy to company's value

Abstract

In this article it is shown that even in the case of constant leverage the cost of equity and the WACC can vary over time. Constant cost of equity and WACC only apply, if further assumptions are made. A corollary of this analysis is the result that, if changes in debt volume affect the dividend payment, the Gordon-Growth-Formula can only be used in the case of constant leverage if the assumption set of Miles and Ezzell applies.In business valuation, the focus is often on the so-called discounted cash flows method. When applying the method, business risk valuation is done by taking only the discount rate into account. This is a very general assumption, which in theory should reflect all possible and probable risks. However, for the purpose of modelling business value dynamics this is not enough, because all business-related risks have to do with various individual and changeable probabilities. Business-related risks on the basis of which business valuation is performed are not being adequately estimated in terms of probabilities. Attempts to achieve a greater business value should be based on research where possibilities to increase business value are modelled based on value estimates and risks related to the optimal relationship criterion. The aim of the article is to analyse and identify the feasible and relative financing alternatives. The results of the research were presented with the help of the probability density function that includes business value variables. The results show that the increase in business value as the goal of each business could and should be analysed together with the value variable-related probability, i.e. in the light of the value risk criterion