A dynamic net present value rule in a financial adjustment cost model

A dynamic model of a self-financing firm is presented in which a convex adjustment cost function is incorporated. The horizon date is assumed to be infinite. It turns out that the concept of ‘net present value of marginal investment’ is a useful tool to develop the firm’s optimal investment policy. When this net present value is positive, negative or zero, it is optimal for the firm to fix the investment rate at its maximum level, minimum level or equilibrium level respectively.