The Dynamic model of choosing an external funding instrument

• Author: Honkova I.
• Pages: 169-182

Bulletin of the Transilvania University of Braşov

Series V: Economic Sciences • Vol. 8 (57) No. 1 - 2015

The dynamic model of choosing an external funding

instrument

Irena HONKOVA1

Abstract: Making a decision about using a specific funding source is one of the most

important tasks of financial management. The utilization of external sources features

numerous advantages yet staying aware of diverse funding options is not easy for financial

managers. Today it is crucial to quickly identify an optimum possibility and to make sure

that all relevant criteria have been considered and no variant has been omitted. Over the

long term it is also necessary to consider the category of time as changes made today do not

affect only the current variables but they also have a significant impact on the future. This

article aims to identify the most suitable model of choosing external funding sources that

would describe the dynamics involved. The first part of the paper considers the theoretical

background of external funding instrument and of decision criteria. The making of financial

decisions is a process consisted of weighing the most suitable variants, selecting the best

variant, and controlling the implementation of accepted proposals. The second part analyses

results of the research - decisive weights of the criteria. Then it is created the model of the

principal criteria Weighted Average Cost of Capital (Dynamic model WACC). Finally it is

created the Dynamic Model of Choosing an External Funding Instrument. The created

decision-making model facilitates the modeling of changes in time because it is crucial to

know what future consequences lies in decisions made the contemporary turbulent world.

Each variant features possible negative and positive changes of varying extent. The

possibility to simulate these changes can illustrate an optimal variant to a decision-maker.

Key Words: Dynamic Model, External Funding Instrument, Weighted Average Cost of

Capital.

1. Introduction

Making a decision about using a specific funding source is one of the most

important tasks of financial management. The utilization of external sources features

numerous advantages (Petřík, 2009) yet staying aware of diverse funding options is

not easy for financial managers.

1 University of Pardubice, Faculty of Economics and Administration, Irena.Honkova@upce.cz