FINANCE Corporate financial policy and R and D Management

We have two equations and two unknowns, x 1 and x 2.

.0202x 1 + .0062x 2 – .0113 = 0

.0062x 1 + .0270x 2 – .0078 = 0

.0202x 1 = –.0062x 2 + .0113

x 1 = –.3069x 2 + .5594

Having solved for x 1 , we can now substitute x 1 into the following x 2
equation:

.0062 (–.3069x 2 + .5594) + .027x 2 = .0078

–.0019x 2 + .0035 + .027x 2 = .0078

.0251x 2 = .0043

x 2 = .1713

x 1 = (–.3069)(.1713) + .5594 = .5068

x 3 = 1 – .5068 – .1713 = .3219

∂σ

∂

p

x

xx

2

2

=+−=... 027 210062 0078 0

∂σ

∂

p

x

xx

xx

2

2

2

22

1

2

22

2 1107 0811 2 2988 1107 0811 2 0811

2 0184 0710 1107 2 1646 0710 0811 2 2988 1107 0811

2 0811 2 0811 2 2988 1107 0811

2210123 0066 0054 0132 0003

=+−+

+−−

−++

=+−++−

[(. ) (. ) (. )(. )(. )] [ (. )

(. )(. )(. ) (. )(. )(. ) (. )(. )(. )]

(. ) (. ) (. )(. )(. )

(... ) (...

00190019 0054 0132 0054

2210135 0062 0078 0

−−+

=+−=

.)..

xx(. ) (. ).

∂σ

∂

p

x

xx

2

1

=+−=... 0202 120062 0113 0

∂σ

∂

p

x

xx

xx

2

1

1

22

2

2

2

12

2 0710 0811 2 1646 0710 0811 2 0811

2 0184 0710 1107 2 1646 0710 0811

2 2988 1107 0811 2 0811 2 1646 0710 0811 0

2 0037 0066 0002 0132 0003 0019

=+−+

+−

−−+=

=+=++−−

[(. ) (. ) (. )(. )(. )] [ (. )

(. )(. )(. ) (. )(. )(. )

(. )(. )(. )] (. ) (. )(. )(. )

(... ) (...

..)

..

(. ) (. ).

0054

0132 0019

2120101 0062 0113

−+

=+−xx

The Use of Financial Information in the Risk and Return of Equity 207