Two-Stage Investment, Loan Guarantees and Share Buybacks

We consider an entrepreneur having an option to invest in a project and a potential growth investment option. The two-stage investment costs are financed by secured loans and paid by insurers respectively. We develop explicit models to describe guarantee costs, the timing and pricing of the two-stage investment options and share buyback option. We find that there exists optimal guarantee combination costs maximizing firm value. The firm value is higher and the negotiated buyback happens much earlier if entrepreneurs initiate buyback. The later the mandatory buyback, or the earlier the negotiated share buyback, the higher the firm value