1. Chapter 7

2. Chapter 7 & 8 Strategic Management Model
Competitive Methods S2 P2 P3 S3 P1 S1

3. Aggregated Cash Flow of
Synthesizing Coalignment Theory with the Realities of the Firms Need to Produce Cash Flow The Value Adding Model
Products/Services
Competitive Method P1
Outsource
Restaurant
Asset
Productivity
Environmental
Events
Expert
Systems
Assets and
Capital S1
Service
Training
Revenue
Maximization
Resource
Allocation
Strategic
Alliances
Adding Value Worksheet
Aggregated Cash Flow of
each Product
and Service
Cash Flow
per Share
The Reality

4. The Pillars of the Investment Decision in Competitive Methods
Determining cost of capital
Estimating cash flows
Determining risk
The investment
Factors to be evaluated in every investment decision

5. Strategic Financial Management – the Cost of Capitalk
kE =Rf + Risk Premium
Required return = return of capital
+ return on capital to offset inflation +
return on capital to offset perceived risk

6. Demand possibilities (a) Probability of sales (c)
Expected value analysis of possible demand for a new competitive method
Demand possibilities (a)
Actual units sold
(b)
Probability of sales (c)
Expected value
(b)*(c)
Excellent
10,000
.10
1,000
Good
8,000
.30
2,400
Favorable
6,000
1,800
Encouraging
4,000
.20
800
Marginal
2,000
200
Total expected unit sales resulting from new competitive method
6,200

7. Operating Leverage and Risk

8. The Net Present Value Formula
Length of Project
Cost of Capital
Cash Flows
Investment