A Model for the Value of a Business,
Some Optimisation Problems in its Operating Procedures and the Valuation
of its Debt
M.Z. Apabhai, N.I. Georgikopoulos, D. Hasnip, R.K.D.
Jamie, M. Kim, P. Wilmott
Abstract
In this paper we present a model for the value of a firm
based on observable variables and parameters: the annual turnover, the
expenses, interest rates. This value is the solution of a parabolic
partial differential equation. We show how the value of the company
depends on its legal status such as its liability (i.e. whether it is a
Limited Company or a sole trader/partnership). We give examples of how the
operating procedures can be optimised (e.g. whether the firm should close
down, relocate etc.). Finally, we show how the model can be used to value
the debt issued by the firm.
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