A multiperiod firm model for strategic decision support

This paper develops and applies a linear, deterministic, multiperiod firm model for strategic planning. The key property of our model is the simplicity of generating optimal firm strategies. Our Purpose is to maximize the discounted value of net income and dividend payouts. The key decision variables are investments, naa loans, new issues, loan repayments, dividend payments, depreciations and the level of operations (ie. turnover). The financial constraints include bounds for the decision variables, some fundamental requirements such as nonnegativity of assets and liabilities and, finally, some balance sheet and income statement relationships. Our model has been tested on some major Finnish firms and if seems to give reliable results. With the data of our sample firm for this paper optimal dividends and optimal net income presuppose different strategies. When optimizing dividends the model balances between investing and paying out dividends, while optimizing net income results in an intensive investment program. Even if our sample firm is but one case, the results are indicative of some fundamental principles governing management decision making. The firm model was designed in PC/Windows-environment, with access to the LINDO-package in the optimization stage.