Abstract
In this paper we extend the well known dynamic adjustment cost models [Gould (1968), Nickell (1978), Treadway (1969)] by incorporating financing restrictions. It turns out that the firm has to invest at its maximum before it reaches the optimal situation derived from the results of those models. Some other conclusions are that investment is a continuous function of time, that it is not optimal for the firm to invest at the end of the planning period when the planning horizon is finite and that a decision rule can be derived to determine uniquely the firm's optimal investment policy. This new dynamic approach leads to a simple decision procedure in practical situations.
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