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...

In this short note, we present a nontechnical retrospection on the unbearable longevity of the classic WACC (Weighted Average Cost of Capital) for the Free Cash Flow (FCF) in perpetuity. Over the past two decades, researchers in finance have increased greatly our understanding of the properties...

In the empirical estimation of the relation between CEO pay and both firm and peer performance, researchers typically include conventional accounting-based measures that reflect firm performance net of executive pay expense. We analytically show that when firms evaluate CEO performance relative...

The efficient and effective organization and coordination of corporate governance activities is still one of the major challenges of modern corporate management. For many years, it was precisely the so-called Three Lines of Defense model that was used to structure governance functions. However,...

Prior research establishes that boards of directors can encourage risk-averse managers to take risky actions by providing stock options and severance pay. We demonstrate that the ability of these incentives to encourage risk-taking hinges on the level of uncertainty facing the manager, and that...

This paper uses an experiment to examine whether involvement in scorecard implementation can mitigate the effects of motivated reasoning that occur when the scorecard is framed as a causal chain rather than merely as a balanced set of measures. Psychological research on motivated reasoning...

Two laboratory experiments on a single-echelon inventory task show that inventory durability interacts with transit lags to create order volatility that exceeds demand volatility (the bullwhip effect). Durability creates bullwhip effects because players adjust orders insufficiently to reflect...

Firms routinely allocate the costs of common corporate resources down to divisions. This paper explores cost allocation rules that induce efficient capital investments by these divisions. It examines efficient allocation rules that satisfy properties of actual rules used in practice, namely...

The topic of "management" and nonprofit organizations (NPOs) continues to fascinate scholars. This paper draws on varying theoretical perspectives to explore their respective contributions to our knowledge of NPOs. The two longstanding and contrasting disciplines of economics and sociology have...