Hostname: page-component-84b7d79bbc-dwq4g Total loading time: 0 Render date: 2024-07-26T13:51:10.122Z Has data issue: false hasContentIssue false
  • English
  • Français

A Total Real Asset Planning System

Published online by Cambridge University Press:  19 October 2009

L. J. Merville  and
L. A. Tavis
Get access Rights & Permissions [Opens in a new window]

Extract

Traditional planning for working capital needs is typically conducted with a relatively short time horizon. In this process, management attempts to optimize the return on existing fixed assets. The period for capital investment planning is much longer, reflecting the irreversibility of these decisions. Current research in the two areas tends to dichotomize these decision processes. The implications seem to be that working capital policies only have impact in the short run. However, it is clear that cash flows for potential capital expenditures are based on assumptions relative to expected future demand and production to meet this demand—assumptions that are necessarily tied to working capital commitments in the long run. The overall planning for credit, inventory, and liquidity should, therefore, be carried out before, or simultaneously with, the capital investment decision. It is a planning requirement that becomes an integral part of the total asset planning system. The vast majority of existing working capital models or long-term capital planning models do not allow for the explicit existence of and the simultaneous interrelationships between these two important subsystems.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 9 , Issue 1 , January 1974 , pp. 107 - 115
Copyright
Copyright © School of Business Administration, University of Washington 1974

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Archer, Stephen H. “A Model for the Determination of Firm Cash Balances.” Journal of Financial and Quantitative Analysis, vol. 1 (March 1966), pp. 1–11.CrossRefGoogle Scholar
[2]Baumol, William J., and Quandt, Richard E.. “Investment and Discount Rates Under Capital Rationing—A Programming Approach.” The Economic Journal, vol. 75 (June 1965), pp. 317–329.CrossRefGoogle Scholar
[3]Benishay, Haskel. “A Stochastic Model of Credit Sales Debt.” Journal of the American Statistical Association, vol. 61 (December 1966), pp. 1010–1027.CrossRefGoogle Scholar
[4]Byrne, R. F.; Charnes, A.; Cooper, W. W.; and Kortanek, K. O.. “A Discrete Probability Chance-Constrained Capital Budgeting Model II.” Opsearch, vol. 6 (December 1969), pp. 226–261.Google Scholar
[5]Charnes, A.; Cooper, W. W.; and Miller, M. H.. “Application of Linear Programming to Financial Budgeting and the Costing of Funds.” Journal of Business, vol. 32 (January 1959), pp. 20–46.CrossRefGoogle Scholar
[6]Charnes, A., and Cooper, W. W.. “Deterministic Equivalents for Optimizing and Satisficing Under Chance-Constraints.” Operations Research, vol. 2 (January–February 1963), pp. 18–39.CrossRefGoogle Scholar
[7]Elton, Edwin J. “Capital Rationing and External Discount Rates.” Journal of Finance, vol. 25 (June 1970), pp. 573–584.Google Scholar
[8]Hirshleifer, J. “On the Theory of Optimal Investment Decision.” Journal of Political Economy, vol. 66 (August 1958), pp. 329–352.CrossRefGoogle Scholar
[9]Krouse, Clement G. “A Model for Aggregate Financial Planning.” Management Science, vol. 18 (June 1972), pp. B-555 – B-566.CrossRefGoogle Scholar
[10]Mehta, Dileep. “Optimal Credit Policy Selection: A Dynamic Approach.” Journal of Financial and Quantitative Analysis, vol. 5 (December 1970), pp. 421–444.CrossRefGoogle Scholar
[11]Merville, L. J., and Tavis, L. A.. “Optimal Working Capital Policies: A Chance-Constrained Programming Approach.” Journal of Financial and Quantitative Analysis, vol. 8 (January 1973), pp. 47–59.CrossRefGoogle Scholar
[12]Miller, Merton H., and Orr, Daniel. “A Model of the Demand for Money by Firms.” Quarterly Journal of Economics, vol. 80 (August 1966), pp. 413–435.CrossRefGoogle Scholar
[13]Orgler, Yair E. “An Unequal-Period Model for Cash-Management Decisions.” Management Science, vol. 16 (October 1969), pp. 77–92.CrossRefGoogle Scholar
[14]Tavis, L. A. “Finding the Best Credit Policy.” Business Horizons, October 1970, pp. 33–40.CrossRefGoogle Scholar
[15]Walker, Ernest W. “Towards a Theory of Working Capital.” Engineering Economist, vol. 9 (January–February 1964), pp. 21–35.CrossRefGoogle Scholar
[16]Weingartner, H. Martin. Mathematical Programming and the Analysis of Capital Budgeting Problems. Englewood Cliffs, N. J.: Prentice-Hall, Inc., 1963.Google Scholar
[17]Zangwill, Willard I.Non-linear Programming: A Unified Approach. Englewood Cliffs, N. J.: Prentice-Hall International Series, 1969.Google Scholar