This article first establishes the appropriate objective function as managing the reward/risk ratio to create value, not merely to minimize risk. We will then discuss ways that reward/risk management can create value, and various ways of managing risk. We start with the proposition that risk...

A risk inventory is a good starting point for developing better risk management because it lists all of the risks that the company might be exposed to and categorizes them as quantifiable or qualitative. The article then goes on to show how to implement a value-creating static hedge program, and...

No responsibility is clearer than the CFO's choice of the firm's financial structure, and yet no task is so complicated, and has so little helpful advice offered by academia. In fact, a theory of optimal capital structure remains of the great unsolved problems of modern corporate finance....

Not so long ago, the CFO's job was limited to financial record keeping, but now he is one of the top decision-makers - often a leading member of the top management team along with the chief executive officer (CEO) and the chief operating officer (COO).More and more frequently the broad...

I have been teaching corporate finance at the graduate level (MBAs and PhDs) for almost 30 years, first for 14 years at UCLA, then at New York University for 10, then at MIT and now at Harvard Business School.The use of real options to analyze major investment decisions is, in my opinion, the...

NPV and economic profit (EP) ignore an important reality: business decisions in many industries and situations can be implemented flexibly through deferral, abandonment, expansion, or in a series of stages that in effect constitute real options. Recognizing real options can help decision makers...

When a situation involves great uncertainty and managers need flexibility to respond, real options valuation comes into its own. If the decision you face involves low uncertainty, or you have no scope to change course when you acquire new information later on, then NPV works fine. If not, you...

The paper provides a brief review of the analysis of pure financial leases. The second part solves the problem of evaluating the cancellable operating leases by using the Cox, Ross and Rubinstein binomial option pricing method. From the lessor's point of view a cancellable operating lease is...

Corporate Finance in the classroom is very different from the knowledge and skills that today's CFOs say they need. This article discusses classroom deficiencies in investment decisions, performance measurement, risk management, and capital structure. Performance measurement is very important...