Abstract
IN HIS FUNDAMENTAL WORKS [15] and [16] Douglas Vickers integrates the production, investment and financing decisions of the firm into a useful and illuminating model. He deals with uncertainty using riskadjusted capitalization and interest rates, assumes constant business risk and treats financial risk as a function of leverage. This paper extends Vickers' analysis by allowing business risk to depend on production and investment decisions.' In particular, it derives a criterion for investment decisions under general uncertainty and market organization conditions when business risk is subject to control. The effect of investment decisions on business risk has been studied by several authors (Hamada [4], Mossin [9], and Tuttle and Litzenberger [13]) under the conditions of idealized uncertainty assumed in the Sharpe-Lintner capital market theory. The investment criterion derived in this paper is shown to be generalization of theirs, and of the one obtained
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