1. Future Values 89 2. Present Values 90

1. Future Values 89 2. Present Values 90

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3. Present Value of a Cash Flow Stream 91 4. Perpetuities 92 5. Annuities 93 6. Multiple Cash Flows per Year 94

C. Capital Budgeting: The Basics 96 1. Decision to Acquire an MBA 96 2. Decision to Open a Day Spa 97 3. Essential Points about Capital Budgeting 98

D. Capital Budgeting: Some Complexities 99 1. Risk 99 2. Inflation 100 3. Taxes and Depreciation Tax Shields 102

E. Alternative Investment Criteria 104 1. Payback 104 2. Accounting Rate of Return 105 3. Internal Rate of Return (IRR) 107 4. Methods Used in Practice 110

F. Summary 110

4 Organizational Architecture 127 A. Basic Building Blocks 128

1. Self-Interested Behavior, Team Production, and Agency Costs 128 2. Decision Rights and Rights Systems 133 3. Role of Knowledge and Decision Making 134 4. Markets versus Firms 135 5. Influence Costs 137

B. Organizational Architecture 139 1. Three-Legged Stool 139 2. Decision Management versus Decision Control 143

C. Accounting’s Role in the Organization’s Architecture 145 D. Example of Accounting’s Role: Executive Compensation Contracts 147 E. Summary 148

5 Responsibility Accounting and Transfer Pricing 161 A. Responsibility Accounting 162

1. Cost Centers 163 2. Profit Centers 165 3. Investment Centers 166 4. Economic Value Added (EVA®) 170 5. Controllability Principle 173

B. Transfer Pricing 175 1. International Taxation 175 2. Economics of Transfer Pricing 177 3. Common Transfer Pricing Methods 181 4. Reoragnization: The Solution if All Else Fails 186 5. Recap 186

C. Summary 188

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