The use of fixed capital budgets is an empirically well-documented phenomenon in business practice. Whensoever some profitable investment opportunities cannot be realized, managers have to make investment decisions between mutually exclusive investment opportunities. In a multiperiod agency...

In February and March of 1999, we surveyed 392 CFOs about the cost of capital, capital budgeting, and capital structure. The survey consisted of 14 main questions, most with subparts - over 100 questions in total. Although the survey was anonymous, we also collected information on 12...

It is widely accepted that the correct discount rate for the tax shield depends on whether the value of the debt is a fixed amount or is a proportion of the value of the firm. In this pedagogical note, using a simple two period numerical example, I assume a fixed amount of debt and demonstrate...

In Velez-Pareja, (1999b and 1999c), some difficulties of EVA as an approach for the measurement of economic added value were considered. In those papers, the use of real economic value added based on the real free cash flow was suggested. This means the real cash flow calculated from the...

This paper examines a multiperiod principal-agent model in which a divisional manager has superior information regarding the profitability of an investment project available to his division. The manager also contributes to the periodic operating cash flows of his division through personally...

In this paper, we quantify shareholder value creation for 276 American companies. We provide the created shareholder value for each and every company for years 1998, 1999, 2000 and 2001. The market value of the 276 companies was 8,716 billion dollars in 2001 and 9,729 billion dollars in 2000. We...

We examine the effect of stock options on managerial incentives to invest. Our chief innovation is a model wherein firm value and executive decisions are endogenous. Numerical solutions to our model show that managerial incentives to invest are multi-dimensional and highly sensitive to option...

In this paper, we quantify shareholder value creation for 274 American companies. We provide the created shareholder value for each and every company for years 1998, 1999, 2000 as well as for 1993-2000. The market value of the 274 companies was 9,680 billion dollars.We define created shareholder...

In this study, we estimate the expected cost of equity capital using the unrestricted form of the classic dividend discount formula and examine the extent to which these estimates (rDIV ) reliably proxy for expected cost of equity capital. We find that the rDIV estimates are associated with six...

In this short paper, (Kulatilaka 1988) model of FMS management is reinterpreted as a real options dynamic programming (DP) version of traditional Cost Volume Profit (CVP) analysis. Computational aspects of the Bellman DP algorithm solution are investigated and some simple solutions are suggested...