Operational Use of the Model

This chapter presents the results of applications of the final model to a variety of situations, arising from different assumptions about the firm&s;s structure, existing activities and tax situation, and policies regarding dividend payments and capital structure. It includes group situations and lease or purchase decisions. The values of incremental projects, as determined by the model, are reconciled with their values under conventional net present value analysis. The chapter demonstrates the effect on solution times of the features designed to improve the model&s;s efficiency. The model is able to decide, for any set of input parameters, the optimal combination of investment decisions, financing decisions and tax strategy simultaneously. Via an iterative process using the CAPM model, a discount rate can be obtained which takes into account the effect of taxes on the returns to shareholders. The process also enables the model to accommodate a constant gearing ratio constraint.