The Value Sphere

The following sections are included:

• CONTENTS

• ACKNOWLEDGMENTS

• OVERVIEW

• ABOUT THE AUTHORS

• INTRODUCTION

The following sections are included:

• The Individual and the Firm
  • Jerry's lemonade stand

• Organizational Process Maps and Value Creation

• Strategy and the Unending Quest for Value Creation

• Executing the Strategy: Resource Allocation

• Executing the Strategy: Value Evaporation, Value Retention, and the Value Sphere

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

The following sections are included:

• Getting Started

• Where will the Money Come From?

• What Jerry Learned

• Jerry's Concluding Thoughts

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

• Addendum to Chapter 2

• Analysis

The following sections are included:

• Jerry's Start

• Perfecting the Business

• The Business Grows

• Expansion Plans

• The IPO Process

• The IPO

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

• Addendum

The following sections are included:

• The Growing Clout of External Investors

• The Essence of Agency Costs

• Bob Gets a Job Offer

• What Really Counts
  • The balanced scorecard

• Coca-Cola

• Ceridian Corporation

• Daimler-Benz

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

The following sections are included:

• How Does Value Evaporate?

• Generalizing from the Case Studies

• Value Evaporation and the Value Sphere: White Paper

• The Solution to the Value Evaporation Problem: Making Employees into Smart Owners

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

The following sections are included:

• Stock Price Goes Down

• A Business Threat Arises

• Business Strategies that Lead to Value

• What does It All Mean for Jerry?

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

The following sections are included:

• Jerry Has Global Ambitions

• Jerry Gets a Lesson in Risk

• What are the External Factors Affecting Value Creation?
  • External macroeconomic conditions
  • The nature of competition in the industry
  • Rivalry among existing industry competitors
  • Bargaining power of buyers/customers
  • Bargaining power of suppliers
  • Threat of new entrants
  • Threat of substitute products

• Jerry Wants to Get Started Right Away

• Micro Risks Which Jerry Can Impact

• Concluding with the Biggest Risk

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

The following sections are included:

• How to Proceed?

• The Capital Markets

• Cost of Debt Financing

• Equity Financing

• The Weighted Average Cost of Capital
  • Calculating WACC
  • International projects

• The Impact of Leverage

• Jerry Needs Time to Let it All Sink In

• Main Points

• End-of-Chapter Exercises

• Practice Problems

The following sections are included:

• Sorting Out the Wheat from the Chaff

• The Existing Capital Budgeting Manual
  • Project Selection Criteria
    • Example

• Practical Interpretations of the Analysis

• Important Capital Budgeting Issues

• Jerry Thinks He Has Found a Shortcut

• Jerry Reflects on Project Selection Criteria

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

The following sections are included:

• Getting Introduced to Economic Profit

• Economic Profit and Shareholder Wealth Creation

• Economic Profit and Strategic Resource Allocation

• Using Economic Profit in Capital Budgeting: Avoiding the “Inverted Pyramid of Ignorance”

• Economic Profit and Value Driver Analysis

• Economic Profit is not a Financial Tool: Using Economic Profit to Create an Ownership Mindset

• When does Economic Profit Fail to Deliver?

• Jerry is Impressed with Economic Profit

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

• Addendum to Chapter 10

The following sections are included:

• The Alphabet Soup of Performance Measures

• What are These Measures Then?

• Which One Should We Use?

• What Makes A Good Financial Management System?

• Jerry and Bob Close with an Eye on the Future

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

The following sections are included:

• Do We Expand the Boundaries of the Business?

• The Lemon Grove Sparks a Discussion of Performance Measures

• A New System is Recommended

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

The following sections are included:

• Is all this Growth Really Good?

• Early Signs of Impending Danger: Bob and Jerry Discuss Preventive Measures

• A Process Orientation Must Precede Adopting a Resource Allocation System

• Going from a Process Orientation to an Effective Resource Allocation System
  • Misalignment Between Strategy and Resource Allocation
  • Lack of Dynamic Structure for Resource Allocation and Lack of Attention to Options
  • Finance Not Viewed as a Partner in a Cross-Functional Team
  • No Connection Between Compensation and Financial Measures
  • Lack of Training of Financial Analysts

• The Discussion Continues: Key Observations are Summarized

• The Proposed Resource Allocation System

• Reflecting on the Potential Benefits of the New System

• Jerry's Lesson: The Value Sphere, The Process, and The People

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

The following sections are included:

• Is It Ever Good to Make a Negative NPV Investment?

• What are Real Options?

• Real Option Concepts

• How do we Value Real Options?

• Black–Scholes Option Pricing: A Resource Allocation Case Study

• Options Thinking Gives Jerry a Fresh Strategic Perspective

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

The following sections are included:

• Training the Troops

• Preliminary Evaluation Tollgate — December 31, 2003

• PET Financials

• Results of the Market Research and the Business Evaluation Tollgate

• Jerry Wants to Light up that Stogie

• Main Lessons

• End-of-Chapter Review Exercises

• Practice Problems

The following sections are included:

• A New Problem: Prosperity of Ideas

• The Search for a Solution

• The Essence of the Report

• Overall Recommendations for Our Financial Policy

• The Theory Behind the Report

• Jerry has Some Questions

• Main Lessons

• End-of-Chapter-Exercises

• Practice Problems

The following sections are included:

• Should Jerry's Lemonade Pay a Dividend?

• Considerations in Paying Dividends

• Bob's Dividend Report

• Jerry Meets With Bob

• Dividend Policy for Jerry's Lemonade

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

The following sections are included:

• Introduction

• Bob's Capital Structure Report

• Jerry Reflects on the Report

• The Meeting with Bob

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

The following sections are included:

• To Acquire or Not: That is the Question

• An Analytical Framework for Acquisitions

• Bob Applies the First Three Steps of His Process to Mickey's

• Bob Examines Estimated Firm Value Based on Status Quo Decision-Making

• Bob Analyzes the Potential Value of Mickey's

• Estimated Firm Value Based on Restructuring

• Maximal Firm Value Under Optimal Combination of Initiatives

• Bob Meets with Jerry to Approach the Target

• The Final Deal

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

• Addendum–Chapter 19

The following sections are included:

• Can we put some Science Behind Our Expense Budgets?

• How do we Allocate Capital for Non-Traditional Projects?

• The HR Project

• The Marketing Project

• Jerry Reads the Report

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

The following sections are included:

• Now Comes the Hard Part: The Morning after the Merger

• Butterfield's Epiphany

• The Integration Plan: Overview

• The Integration Plan: Details

• The Integration Plan Reaches Jerry

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

The following sections are included:

• Introduction

• Sarbanes–Oxley Act of 2002

• Jerry and Bob Have a Heated Sarbox Discussion

• Jerry Moves Forward with the Sarbox Task Force

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

• Addendum to Chapter 2

The following sections are included:

• Introduction

• Bob's Report on Executive Compensation
  • Do High-Powered Incentives Have a Downside?
  • Executive Compensation Trends: The Hard Data
  • Key Questions About Why Executive Pay is Designed the Way It Is
  • The Basic Theory Underlying the Design of Executive Compensation
  • Why do we Need Pay-for-Performance?
  • What Determines Pay-for-Performance?
  • Pay-for-Performance in Practice: The Empirical Evidence
  • How do Management Stock Options Affect Firm Value?
  • Recent Innovations in Management Stock Options
  • The Future: Will Executive Compensation Keep Rising?

• Jerry Digests the Report

• Main Lessons

• End of Chapter Exercises

• Practice Problems

The following sections are included:

• How do you Manage in Tough Times?

• The Innovation Dilemma

• Putting It All Together

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

The following sections are included:

• Marketing and Finance Clash

• The Meeting

• An Integrated View Emerges
  • The Peters Report

• Jerry Reflects on the Report

• Main Lessons

• End-of-Chapter Exercises

• Practice Problems

The following sections are included:

• Index