This paper examines the choice of asset valuation rules from a managerial control perspective. A manager creates value for a firm through his effort choices. To support its operating activities, the firm also engages in financing activities such as credit sales to its customers. Since such...

Two managers invest funds in either a division-specific or common project. Managers are privately informed of their own division-specific return ratio and issue forecasts to their partner. Experimental parameter values are chosen such that: (1) investment in the division-specific project...

The purpose of this field study is to gain better insights into the control strategies of firms with regard to strategic investments in manufacturing plant and equipment. More specifically, this research sets out to examine how management control systems (MCSs) are designed and used in an...

John Shank (in this special edition) summarises the argument for complementing a capital budgeting approach to investment decisions with a broader strategic cost management (SCM) accounting approach incorporating three additional tools __ value chain analysis, cost driver analysis and...

This paper considers incentive provisions for a manager who makes investment decisions. The manager's performance measure can be based on current accounting information, cash flow, depreciation, book value, and current investment. We argue that Residual Income is the unique (linear) performance...

This paper provides a formal analysis of how managerial investment incentives are affected by alternative allocation rules when managerial compensation is based on accounting measures of income that include allocations for investment expenditures. The main result is that there exists a unique...

This is an annotated appendix that accompanies the paper. In this note, we provide detailed commentary on a numerical example that illustrates the ideas that we discuss in the main paper. The numerical example is in Table18.10, Chapter 8, page 656, of the third edition of Corporate Finance,...

In this note, we extend a numerical example in the textbook by Berk & DeMarzo that matches methods for only when K_TS is equal to K_D. We show that there is a generalized formulation for the return to levered equity K_E that works for any value of K_TS, the appropriate discount rate for the tax...

This is a draft of Chapter 1 for an upcoming book on Financial Modeling & Valuation. Informally, the chapter introduces the basic concepts in cash flow valuation. It reviews the different types of finite cash flows and discusses the cost of capital with and without taxes in a world with perfect...

In this rejoinder, we note that the complaint against the classic FCF WACC is misplaced because it incorrectly identifies the real source of the problem. The fault for the discrepancies, dear colleagues, lies not in the classic formulation of the FCF WACC. The real reason for the discrepancies...