) a Leading Author in Accounting and Finance, Alfred Rappaport

question 31

Essay

) A leading author in accounting and finance, Alfred Rappaport focuses in his work on the importance of a firm's management continually taking steps that increase shareholder value. In a recent article he set out his "Ten Ways to Create Shareholder Value:"

● Do not manage earnings or provide earnings guidance; do not focus on earnings as it reflect neither the company's value or the change in value over the reporting period.
● Make the strategic decisions that maximize expected value, even at the expense of lowering near-term earnings; this may mean divesting units that do not contribute to the company's long-term strategic goals though they do contribute to current profits.
● Make acquisitions that maximize expected value, even at the expense of lowering near-term earnings; do not make acquisitions that improve only current earnings per share, but those that are expected to contribute to long-term value.
● Carry only assets that maximize value; continually review assets and be prepared to sell units, brands, real estate, or other assets that can be sold for a price that is greater than their value to the company.
● Return cash to shareholders when there are no credible value-creating opportunities to invest in the business; through cash dividends and stock buybacks.
● Reward CEOs and other senior executives for delivering superior long-term returns.
● Reward operating unit managers for adding superior multiyear value.
● Reward middle managers and frontline employees for delivering superior performance on the key value drivers that they influence directly.
● Require senior executives to bear risks of ownership just as shareholders do.
● Provide investors with value relevant information.

Required:
A key topic in management accounting is the valuation of a company. Focusing on public companies, Rappaport explains how to increase business value to shareholders. Summarize his 10 recommendations and show how they can be related to cost management, management compensation, and business valuation.

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Definitions:

Poisson Distribution

A probability distribution that expresses the probability of a given number of events occurring in a fixed interval of time or space if these events happen with a known constant mean rate and independently of the time since the last event.

Occurrences

Instances or examples of something happening; events that take place.

Specified Interval

A defined range or period, often set for a particular purpose or task, indicating the precise limits within which something operates or occurs.

Binomial Experiment

An experiment having the four properties stated at the beginning of Section 5.5.