Ivey Publishing

Corporate Financial Management

Emery, D.R., Finnerty, J.D., Stowe, J.D.,,2/e (United States, Pearson, 2004)
Prepared By Guorong Ya, Ph.D. Student (Finance)
Chapter and Title Chapter Matches: Case Information
Chapter 1:
Introduction and Overview

JOHN LABATT LIMITED, 1992
Robert W. White, Ping Wang

Product Number: 9A95B041
Publication Date: 11/14/1995
Revision Date: 2/11/2010
Length: 14 pages

The purpose of this case is to permit a discussion about value creation, performance assessment, the case method and corporate finance. It is intended to be used in the first class in a corporate finance course.

Teaching Note: 8A95B41 (21 pages)
Industry: Manufacturing
Issues: Case Method; Restructuring; Valuation
Difficulty: 4 - Undergraduate/MBA


Chapter 2:
The Financial Environment: Concepts and Principals

BIOVAIL CORPORATION (A)
David J. Sharp, Mary Gillett, Jessica Frisch

Product Number: 9B04N007
Publication Date: 4/5/2004
Revision Date: 10/15/2009
Length: 6 pages

Biovail Corporation, a large pharmaceutical company, recently had its stock downgraded by a well known pharmaceutical analyst and a number of other analysts were also scrutinizing the company. The outcome was not favorable, as Biovail's acquisition methods were labeled as unethical and their accounting practices were questioned. An investor with the company must decide if she will continue to invest in a company that has been identified with low ethical standards. The supplement Biovail Corporation (B), product 9B04N008 discusses the investor's decision, and some information that caused her to reconsider that decision.

Teaching Note: 8B04N07 (7 pages)
Industry: Manufacturing
Issues: Patents; Ethical Issues; Investments
Difficulty: 4 - Undergraduate/MBA


Chapter 3:
Accounting, Cash Flows and Taxes

LEWIS & COMPANY
Craig Dunbar, Simon Parmar

Product Number: 9A99N013
Publication Date: 7/20/1999
Revision Date: 1/21/2010
Length: 4 pages

Grant Lewis, a Chartered Accountant (CA) and senior manager at a Big Six professional services firm, was investigating the feasibility of establishing a CA firm with two former colleagues. Mr. Lewis recognized the need for external financing during the start-up phase of the business. In preparation for a meeting with his bank manager, Mr. Lewis has been asked to prepare a projected monthly cash flow statement as well as a balance sheet and income statement for the first year of operations. The primary objective of the case is to get students to develop these financial statements and appreciate the links and differences between a cash flow and an income statement. The case also allows students to examine the bank lending process, discuss the merits and drawbacks of starting a small business, and become familiar with some of the basic components and sources of relevant market information for a new venture.

Teaching Note: 8A99N13 (7 pages)
Industry: Administrative, Support, Waste Management and Remediation Services
Issues: New Venture; Traffic Control; Financial Reports/Disclosure; Cash Budgeting
Difficulty: 4 - Undergraduate/MBA


Chapter 4:
The Time Value of Money

TIME VALUE OF MONEY: ASIAN APPLICATIONS
Claude P. Lanfranconi, Geoff Crum

Product Number: 9A98B018
Publication Date: 8/18/1998
Revision Date: 1/25/2010
Length: 5 pages

This is a time value of money exercise related to three situations in an Asian setting; purchase and accounting for a capital asset, accounting for a lease, and a bond valuation.

Teaching Note: 8A98B18 (7 pages)
Issues: Accounting Methods; Lease Accounting; Bonds; Capital Investment
Difficulty: 4 - Undergraduate/MBA



CREIT - THE PROPERTY INVESTMENT DECISION
Stephen R. Foerster, Keith McRae

Product Number: 9A99N011
Publication Date: 8/31/1999
Revision Date: 1/21/2010
Length: 14 pages

The vice-president of acquisitions for Canadian Real Estate Investment Trust (CREIT) was contemplating two investment opportunities facing his firm. CREIT had been very aggressive recently in an attempt to increase the size and diversity of its portfolio. One potential deal that he was contemplating involved the purchase of a 161-unit apartment building in a Montreal suburb, while the other potential deal involved the purchase of a retail complex in a Chicago suburb. Both deals were under a due diligence period, meaning that CREIT had a short period of time to review the properties and decide whether or not to proceed with either purchase. He had to make his recommendation to the senior board of CREIT, and he wondered what specifically about each property was attractive or unattractive, whether the respective markets justified the price levels, and if the respective properties were consistent with CREIT's acquisitions strategy. The case introduces real estate investment trusts and demonstrates some generic concepts relating to the valuation of real estate assets, including discounted cash flow and comparable sales analysis.

Teaching Note: 8A99N11 (10 pages)
Industry: Real Estate and Rental and Leasing
Issues: Real Estate; Valuation; Investment Analysis
Difficulty: 4 - Undergraduate/MBA


Chapter 5:
Valuing Bonds and Stocks

GREYDANUS, BOECKH & ASSOCIATES: THE YIELD CURVE KINK DECISION
Stephen R. Foerster

Product Number: 9A98N022
Publication Date: 11/19/1998
Revision Date: 2/2/2010
Length: 17 pages

A bond portfolio manager is re-evaluating the funds position in government bonds. His team had attempted to take advantage of a mis-priced bond and was now in the process of re-examining the recent move in interest rates, the current shape of the yield curve, and the forecast for interest rate changes. This case introduces students to fundamental bond valuation and price change issues, including duration and convexity, as well as bond management styles.

Teaching Note: 8A98N22 (10 pages)
Industry: Finance and Insurance
Issues: Investment Analysis; Bonds; Investment Funds; Portfolio Management
Difficulty: 4 - Undergraduate/MBA



RICK THOMPSON'S STOCK INVESTMENT: COMPANY ANALYSIS
Stephen R. Foerster

Product Number: 9A99N007
Publication Date: 4/22/1999
Revision Date: 1/21/2010
Length: 5 pages

An investment advisor for National Securities Inc. had just met with a client who was looking for some interesting stocks to add to his portfolio of investments. He wanted to understand how to analyze a particular company's financial statements and project earnings, and a target share price. This case allows students to assess a particular company's financial statements in order to determine, based on the Dupont method, the drivers behind internal growth. The price-earnings valuation method is also presented. This case is the second in a series of three cases that focus on a variety of stock investment decisions. (See 9A99N006 and 9A99N009.)

Teaching Note: 8A99N07 (5 pages)
Industry: Finance and Insurance
Issues: Valuation; Investments; Investment Analysis; Financial Reports/Disclosure
Difficulty: 4 - Undergraduate/MBA


Chapter 6:
Business Investment Rules

PEPSICO CHANGCHUN JOINT VENTURE: CAPITAL EXPENDITURE ANALYSIS
Larry Wynant, Claude P. Lanfranconi, Peter Yuan, Geoff Crum

Product Number: 9B00N016
Publication Date: 2/2/2001
Revision Date: 1/12/2010
Length: 15 pages

PepsiCo Inc. spanned more than 190 countries and accounted for approximately one-quarter of the world's soft drinks. The vice-president of finance for PepsiCo East Asia had been collecting data on the firm's proposed equity joint venture in Changchun, People's Republic of China (PRC). While PepsiCo was already involved in seven joint ventures in the PRC, this proposal would be one of the first two green-field equity joint ventures with PepsiCo control over both the board and day-to-day management. Every investment project at PepsiCo had to go through a systematic evaluation process that involved using capital budgeting tools such as new present value (NPV) and internal rate of return (IRR). He needed to decide if the proposed Changchun joint venture would meet PepsiCo's required return on investment. He was also concerned what the local partners would think of the project. The final decision would be made after a presentation to the president of PepsiCo Asia-Pacific.

Teaching Note: 8B00N16 (11 pages)
Industry: Manufacturing
Issues: China; Net Present Value Method; Joint Ventures; Financial Analysis; Internal Rate of Return
Difficulty: 4 - Undergraduate/MBA



IMAGEBUILDER SOFTWARE
David C. Shaw, Mike Boydell, Blair Zilkey

Product Number: 9A95B026
Publication Date: 10/30/1995
Revision Date: 2/15/2002
Length: 27 pages

The president of a software development company was contemplating how to reward its investors. Since the company's inception 10 years previously, the company had not paid full dividends to shareholders. The president was anxious to provide some return for the investments made, but he was convinced that he could maximize shareholder return if he could position the company to take advantage of the tremendous industry growth. He also wonders how much capital he will need, and where to obtain it.

Teaching Note: 8A95B26 (9 pages)
Industry: Educational Services
Issues: Return on Investment; Valuation; Financing
Difficulty: 4 - Undergraduate/MBA


Chapter 7:
Capital Budgeting Cash Flows

PALMER LIMITED
Stephen R. Foerster, James E. Hatch, John A. Humphrey

Product Number: 9B01N020
Publication Date: 2/12/2002
Revision Date: 9/28/2011
Length: 9 pages

The accountant for Palmer Limited, a sheet metal sub-contractor, has been asked to provide a monthly cash budget along with the projected income statement and balance sheet for her client. The request came about because the banker is concerned about whether Palmer Limited can repay its loan.

Teaching Note: 8B01N20 (11 pages)
Industry: Construction
Issues: Financial Planning; Budgeting; Cash Budgeting; Cash Flow
Difficulty: 4 - Undergraduate/MBA


Chapter 8:
Capital Budgeting in Practice

LAURENTIAN BAKERIES
Stephen R. Foerster, Rob Barbara

Product Number: 9A95B029
Publication Date: 12/8/1995
Revision Date: 2/11/2010
Length: 12 pages

The vice-president of operations must submit a valuation and recommendation to expand his plant to handle a doubling of sales over the next three years. Students will have to understand the process review for capital allocation in this large corporation in order to make their recommendation, as well as complete a discounted cash flow.

Teaching Note: 8A95B29 (9 pages)
Industry: Manufacturing
Issues: Planning; Capital Budgeting
Difficulty: 4 - Undergraduate/MBA



PLEASURE CRAFT INC.
Dan Thompson

Product Number: 9B05N010
Publication Date: 10/28/2005
Revision Date: 9/6/2011
Length: 8 pages

Pleasure Craft Inc. is a manufacturer of snowmobiles and personal watercraft. The company is looking into expanding it business into either outboard motors or front-end loaders. A new team leader has been asked to prepare financial analyses on each project and to recommend whether one or both projects should be pursued. The team leader must determine initial costs, estimate future cash flows, and calculate the cost of capital.

Teaching Note: 8B05N10 (11 pages)
Industry: Manufacturing
Issues: Capital Budgeting; Cost of Capital; Net Present Value Method
Difficulty: 4 - Undergraduate/MBA


Chapter 9:
Risk and Return: Stocks

JANE SMITH'S INVESTMENT DECISION (C)
Stephen R. Foerster

Product Number: 9A98N031
Publication Date: 1/29/1999
Revision Date: 2/2/2010
Length: 3 pages

An investment adviser for National Securities Inc. was meeting again with a new client. He was recommending a number of stocks for consideration as part of her investment portfolio. The client wanted to understand what the expected return and risk implications were related to investing in some of the recommended stocks. This case allows students to examine return and risk measures for both individual securities as well as portfolios. Sharpe and Treynor performance measures are also examined. This case is the third in a series of three cases that focus on a variety of investment decisions. (See also 9A98N029 and 9A98N030.)

Teaching Note: 8A98N31 (6 pages)
Industry: Finance and Insurance
Issues: Investments; Investment Analysis; Investment Funds; Portfolio Management
Difficulty: 4 - Undergraduate/MBA


Chapter 10:
Risk and Return: Asset Pricing Models

VALUING COCA COLA STOCK
Stephen R. Foerster, Bruce Chin

Product Number: 9A97N017
Publication Date: 12/2/1997
Revision Date: 2/5/2010
Length: 9 pages

An investment advisor with a major brokerage firm gave investment suggestions and helped clients manage their portfolios. Some of her clients had Coca Cola stock in their portfolios and she wondered whether to recommend the stock to any of her new clients or clients that did not currently have Coca Cola in their portfolios. The case can be used to introduce the dividend discount model, capital asset pricing model, and price-earnings models.

Teaching Note: 8A97N17 (7 pages)
Industry: Finance and Insurance
Issues: Investments; Stock Market; Valuation; Investment Analysis
Difficulty: 4 - Undergraduate/MBA



TOM.COM: VALUATION OF AN INTERNET COMPANY
Larry Wynant, Stephen R. Foerster, Peter Yuan

Product Number: 9B00N013
Publication Date: 8/10/2000
Revision Date: 1/12/2010
Length: 18 pages

AWARD WINNING CASE - This case was one of the winning cases in the 2000 Regional Asia-Pacific Case Writing Competition. The Internet investment craze was starting to catch on in Hong Kong. Tom.com Limited, a Hong Kong based Internet company, was planning an initial public offering at the Hong Kong Stock Exchange. A portfolio manager for EuroGlobal Funds was to provide his professional opinion on the value of this investment and its appropriateness for different investors. He was aware of the difficulties in valuing Internet companies and the debate over the choice of valuation methods. Among these, one approach was to analyze the implied hyper-growth rate that Internet companies had to achieve in the next five years in order to justify their current valuations. He decided to apply this approach to Tom.com. Students will have the opportunity to discuss the different valuation methods and the development of Internet and e-commerce companies, especially topics such as business models and expected growth.

Teaching Note: 8B00N13 (16 pages)
Industry: Administrative, Support, Waste Management and Remediation Services
Issues: China; International Finance; Internet; Valuation; Investment Analysis
Difficulty: 4 - Undergraduate/MBA


Chapter 11:
Risk, Return, and Capital Budgeting

TELUS: THE COST OF CAPITAL
Stephen R. Foerster, James E. Hatch, David C. Shaw

Product Number: 9B01N019
Publication Date: 2/12/2002
Revision Date: 1/6/2010
Length: 8 pages

Two managers attending an executive education course attempt to develop a cost of capital estimate for a leading telecommunications company. The two managers are confused about the costs of various sources of capital, the calculation of the overall corporate cost of capital, and the appropriate use of the hurdle rate. They must investigate the concept of cost of capital, review historical data on risk premiums, develop a process for estimating the various components of the cost of capital, and determine the corporate cost of capital.

Teaching Note: 8B01N19 (9 pages)
Industry: Information, Media & Telecommunications
Issues: Cost of Capital; Valuation
Difficulty: 4 - Undergraduate/MBA



GRACE BIOREMEDIATION TECHNOLOGIES
James E. Hatch, Michael J. Robinson

Product Number: 9B04N009
Publication Date: 8/12/2005
Revision Date: 10/15/2009
Length: 14 pages

A venture capitalist must prepare a memorandum for his investment committee outlining the opportunities and challenges presented by financing a leveraged management buyout of Grace Bioremediation Technologies, a company involved in developing manufacturing and marketing soil and water bioremediation technologies. He must decide the appropriate rate of return, assess risks and opportunities and design a term sheet containing the details of a deal structure that includes major clauses required for any loan and shareholders' agreements.

Teaching Note: 8B04N09 (9 pages)
Industry: Manufacturing
Issues: Private Equity; Venture Capital
Difficulty: 4 - Undergraduate/MBA


Chapter 12:
Risk, Return, and Contingent Outcomes

SLEEPLESS IN L.A.
Walid Busaba, Zeigham Khokher, Elliott Weinstein

Product Number: 9B05N011
Publication Date: 8/12/2005
Revision Date: 10/4/2009
Length: 6 pages

A first year business school student has obtained a summer job as an analyst at a top investment bank in Los Angeles, California. His first assignment was the pricing of MicroComp's junk-bonds in the market place. Looking at the market value balance sheets, it was very clear that MicroComp was in financial distress. MicroComp's dept totaled $150 million, while the market value of its assets were $80 million. If MicroComp was required to repay its debt immediately, it would be forced into bankruptcy. Clearly, MicroComp was in effective default, why did its market capitalization remain at $5 million? Why had it not fallen to zero? Students will use option theory to answer these questions.

Teaching Note: 8B05N11 (3 pages)
Industry: Finance and Insurance
Issues: Bond Valuation; Put Call Parity; Options Pricing; Volatility
Difficulty: 4 - Undergraduate/MBA



RAMSYNC BRIEF
Walid Busaba, Zeigham Khokher, Elliott Weinstein

Product Number: 9B05N012
Publication Date: 8/12/2005
Revision Date: 10/4/2009
Length: 5 pages

The manager of a billion dollar hedge fund had just been approached by a syndicate of funds to gauge her interest in a bid to purchase RamSync Incorporated, a Silicon-Valley manufacturer of memory chips. Using a traditional discounted cash flow analysis (the APV method), the manager quickly determines that at a purchase price of $900 million, RamSync has a negative NPV of $33 million. However, purchasing RamSync, which currently produces SDRAM, would allow the owner to enter the much-anticipated MRAM market at a future period in time. The manager is now forced to reconsider how to value RamSync considering the hidden call option it has on the MRAM market.

Teaching Note: 8B05N12 (4 pages)
Industry: Finance and Insurance
Issues: Options; Options Pricing; Growth Option
Difficulty: 4 - Undergraduate/MBA


Chapter 13:
Risk, Return, and Agency Theory

NOTE ON AGENCY THEORY AND DEAL STRUCTURING
James E. Hatch, Maureen Daschuk, Christopher Holmes

Product Number: 9A96B001
Publication Date: 2/5/1996
Revision Date: 2/5/2010
Length: 20 pages

When two or more parties establish a relationship or structure a deal, one of the key issues that arises is the nature of the agency relationship between them. This technical note explains the concept of agency, outlines some of the typical agency relationships that exist in businesses, the agency problems that can arise between people and organizations and the tools that are employed to address these agency problems.

Issues: Agency; Entrepreneurial Finance; Deal Structuring
Difficulty: 4 - Undergraduate/MBA


Chapter 14:
Capital Market Efficiency: Explanation and Implications

JANE SMITH'S INVESTMENT DECISION (B)
Stephen R. Foerster

Product Number: 9A98N030
Publication Date: 1/29/1999
Revision Date: 2/2/2010
Length: 3 pages

An investment adviser for National Securities Inc. was meeting with a new client. Since the client had not been an active investor in equities, she had many questions for the advisor, particularly related to the notion of market efficiency. In addition, she wanted to understand the importance of different investment styles, such as growth versus value. This case is the second in a series of three cases that focus on a variety of investment decisions. (See also 9A98N029 and 9A98N031.)

Teaching Note: 8A98N30 (5 pages)
Industry: Finance and Insurance
Issues: Investment Analysis; Investments; Investment Funds; Portfolio Management
Difficulty: 4 - Undergraduate/MBA


Chapter 15:
Capital Structure Policy

UNIHOST CORPORATION
Craig Dunbar, JJ McHale

Product Number: 9A99N008
Publication Date: 6/8/1999
Revision Date: 1/21/2010
Length: 16 pages

The CFO of UniHost Corporation is faced with a requirement to raise capital. UniHost is involved in the development, syndication, franchising and management of motels and hotels in Canada. Most of its properties were flagged under the Quality and Comfort brands. UniHost required capital to repay a $52 million bridge loan facility and fund multiple growth opportunities. Financing alternatives included equity, convertible bonds and high yield debt. The CFO had to decide on both the form and structure of the financing. The case allows for discussion of a number of issues, including: the public financing process in Canada, financing strategy (i.e. choice of the form of financing in the context of a likely sequence of financings), optimal capital structure, and the impact of financing decisions on the overall strategy of a firm. With respect to the debt alternatives, data is provided which allows for analysis of the choice of debt maturity, bond covenants and bond rating agencies.

Teaching Note: 8A99N08 (14 pages)
Industry: Accommodation & Food Services
Issues: Hotel Management; Deal Structuring; Bonds; Financing
Difficulty: 4 - Undergraduate/MBA



VENTRA GROUP INC.
Robert W. White, Kathryn Fric

Product Number: 9A96B018
Publication Date: 5/14/1996
Revision Date: 2/5/2010
Length: 4 pages

In August 1994, Ventra Group Inc. decided to acquire Peerless-Cascade. The Cdn$16 million cash needed would be financed by a Cdn$10 million TD Bank bridge loan and a Cdn$6 million TD Bank loan arranged for Peerless-Cascade. Subsequent to the decision, Peerless-Cascade bid on contracts for parts being newly outsourced by Ford and were successful in winning contracts. The completion of these contracts would require the expansion of the Russelville plant by a 45,000 square foot addition and 12 new injection molding machines. Should Ventra change its acquisition financing strategy? The key point is to emphasize the need for financial flexibility.

Teaching Note: 8A96B18 (293 KB)
Industry: Manufacturing
Issues: Financial Strategy; Leverage
Difficulty: 4 - Undergraduate/MBA


Chapter 16:
Managing Capital Structure

GILLETTE COMPANY'S ACQUISITION OF DURACELL INTERNATIONAL INC. - COST OF CAPITAL
Robert W. White, Anna Garcia

Product Number: 9A97N012
Publication Date: 9/11/1997
Revision Date: 2/5/2010
Length: 15 pages

Following a five-year search for a profitable, technologically-driven branded consumer products business with international growth potential, The Gillette Company announced its intended acquisition of Duracell. The focus of the case is on assessing the risk of Duracell and the measurement of a discount rate for valuation. The case is particularly rich because of the changing risk profile of Duracell.

Teaching Note: 8A97N12 (380 KB)
Industry: Manufacturing
Issues: Mergers & Acquisitions; Strategic Planning; Cost of Capital; Valuation
Difficulty: 4 - Undergraduate/MBA


Chapter 17:
Dividend Policy

CHAMPION ROAD MACHINERY
Stephen R. Foerster, Rob Barbara

Product Number: 9A95B028
Publication Date: 12/8/1995
Revision Date: 2/11/2010
Length: 12 pages

Scott Hall, vice-president of finance and chief financial officer of Champion Road Machinery Limited, was preparing a presentation on the company's proposed dividend policy for a board of directors' meeting scheduled for the middle of August. It had been only three months since the company completed its initial public offering, at which time the prospectus stated that: The company does not anticipate paying cash dividends on the common shares in the foreseeable future, but intends to retain future earnings for reinvestment in the business. However, earnings were well ahead of those projected in the prospectus and the company had succeeded in managing cash better than anticipated.

Teaching Note: 8A95B28 (5 pages)
Industry: Manufacturing
Issues: Dividend Policy; Cash Budgeting
Difficulty: 4 - Undergraduate/MBA



TORSTAR CORPORATION
Robert W. White, William Jin

Product Number: 9A99N031
Publication Date: 12/1/1999
Revision Date: 1/21/2010
Length: 23 pages

The vice president of finance was reviewing the corporation's financial situation in preparation for the forthcoming board of directors' meeting. Key items on the board's agenda included Torstar's dividend policy and share repurchase strategy, along with Torstar's ability to acquire strategic investments and to maintain capital expenditure requirements. The case focuses on the optimal utilization of excess cash flow.

Teaching Note: 8A99N31 (233 KB)
Industry: Manufacturing
Issues: Signalling; Share Buybacks; Dividend Policy
Difficulty: 5 - MBA/Postgraduate


Chapter 18:
Issuing Securities and the Role of Investment Banking

FOUR SEASONS HOTELS AND RESORTS INC.
Robert W. White, Richard Johnston

Product Number: 9A99N035
Publication Date: 12/15/1999
Revision Date: 1/21/2010
Length: 22 pages

Four Seasons Hotels and Resorts Inc. had grown significantly during the past 20 years, and most recently, had fundamentally changed the nature of its business from hotel ownership to hotel and resort management. The focus of the case is on what more could be done to enhance the value of the firm. Should an equity offering be undertaken? Was the timing right? Who should be the underwriters? What should be the criteria for selecting one underwriter over another? Should it be a global equity offering or should it be kept in Canada? Would debt refinancing be a better alternative? What would be the advantage of one over the other? Who should be the target buyers? What would the impact of each choice be on shareholder value?

Teaching Note: 8A99N35 (1352 KB)
Industry: Accommodation & Food Services
Issues: Financing; Global Offering; Financial Strategy
Difficulty: 5 - MBA/Postgraduate



FOX'S INITIAL PUBLIC OFFERING: UNLOCKING SHAREHOLDER VALUE AT NEWS CORPORATION
Craig Dunbar, Michael Remedios

Product Number: 9A99N039
Publication Date: 9/14/2000
Revision Date: 1/21/2010
Length: 23 pages

News Corporation was planning to sell shares in its recently created subsidiary, Fox Entertainment Group (Fox). It was expecting to raise close to $2 billion making this initial public offering (IPO) the third-largest in U.S. history. In the previous few months, News Corp.'s stock price had tumbled, and the Dow Jones Industrial Average and the Standards & Poor 500 had both dropped significantly. The senior management team at News Corp. faced several crucial and complex decisions in the coming weeks concerning the Fox IPO. First, given the current market conditions, should the company proceed with the much-anticipated IPO, and if so, what was the optimal price and size of the offering? Moreover, was such a partial offering (i.e., equity carve-out) still the optimal solution to increasing shareholder value at News Corp.? This case describes global media and entertainment industry trends and allows for detailed analysis and discussion of conglomerate discounts and value enhancement strategies, including carve-outs; the IPO process, including timing considerations; and IPO valuation, with particular focus on comparable approaches.

Teaching Note: 8A99N39 (8 pages)
Industry: Arts, Entertainment, Sports and Recreation
Issues: Financial Strategy; Price Tension; Initial Public Offerings; Valuation
Difficulty: 4 - Undergraduate/MBA


Chapter 19:
Long-Term Debt

HUTCHISON WHAMPOA LIMITED - YANKEE BOND OFFERING
G. Andrew Karolyi, Richard Johnston

Product Number: 9A98N023
Publication Date: 11/25/1998
Revision Date: 2/2/2010
Length: 18 pages

A diversified global interests company, which is financed through medium and long-term loans, is preparing a US$1 billion bond offering. Students will have to figure the individual bond price, including the possible cost of the issue, while considering the receptiveness of the market, given the change in sovereignty over Hong Kong.

Teaching Note: 8A98N23 (6 pages)
Issues: Globalization; International Finance; Financial Strategy
Difficulty: 4 - Undergraduate/MBA



CLEARNET COMMUNICATIONS INC.
Robert W. White, Anthony Guagliano, Neeloy Devani

Product Number: 9B00N004
Publication Date: 5/1/2000
Revision Date: 1/12/2010
Length: 25 pages

Clearnet is a rapidly growing wireless communications company in the midst of a major capital investment and marketing program. The vice-president/chief financial officer must make an immediate decision involving how much Clearnet should try to raise from the public, when, what sort of instrument, and where? Among the alternatives are equity and high yield debt issues in Canada versus U.S., and cash-pay versus discount notes. Two years after its start-up, Clearnet successfully launched its Mike network, an enhanced specialized mobile radio digital network. In addition, Clearnet was awarded a national personal communications service license and was in the midst of a major network build-out program and organizational expansion in preparation for launching personal communications services the following year to be directed at the mass consumer market.

Teaching Note: 8B00N04 (710 KB)
Industry: Information, Media & Telecommunications
Issues: Financing; Emerging Markets; Growth
Difficulty: 4 - Undergraduate/MBA


Chapter 20:
Leasing and Other Asset-Based Financing

SHIRTS 'N STUFF INC.
James E. Hatch, Aileen Kheraj

Product Number: 9B03N005
Publication Date: 8/12/2005
Revision Date: 10/22/2009
Length: 18 pages

The owner of Shirts `N Stuff wants to grow his chain of novelty stores. The alternatives are to set up a series of partially owned stores or to franchise the concept. The owners would like to understand how the partnership and franchise agreements would be designed. Students will evaluate the financial and qualitative implications of setting up partnerships and franchises, understand the importance of carefully evaluating management competencies when planning for growth and prepare a spreadsheet to assist in with analysis.

Teaching Note: 8B03N05 (24 pages)
Industry: Retail Trade
Issues: Private Placement; Growth; Franchising
Difficulty: 4 - Undergraduate/MBA


Chapter 21:
Derivatives and Hedging

IFC MANUFACTURING - FOREIGN EXCHANGE HEDGING
Craig Dunbar, Chand Sooran

Product Number: 9A99N010
Publication Date: 6/8/1999
Revision Date: 1/21/2010
Length: 19 pages

IFC Manufacturing, an automobile parts producer, was attempting to raise capital to fund expansion in Mexico. In order to secure financing, the creditor banks required an assessment of the IFC's financial risk management apparatus. IFC had exposures to foreign exchange and interest rates. IFC had grown aggressively by acquiring firms on both sides of the Canadian-U.S. border, funding these purchases in U.S. dollars. The case allows for discussion of a number of issues, including: internal controls (the Group of Thirty recommendations for good derivatives practices), risk measurement and management. Data is provided which allows students to qualify translational and transactional risk exposures. Information is also provided allowing students to evaluate IFC's portfolio of hedging instruments which includes plain vanilla options, single barrier options, double barrier options and average rate options.

Teaching Note: 8A99N10 (14 pages)
Industry: Manufacturing
Issues: Risk Management; Foreign Exchange; Derivatives; Bank Lending
Difficulty: 4 - Undergraduate/MBA



RBC MORTGAGE CAPPER
Robert W. White, Neil Rabovsky

Product Number: 9A96B010
Publication Date: 5/14/1996
Revision Date: 2/5/2010
Length: 22 pages

The treasurer of Royal Bank Mortgage Corporation proposes a new residential mortgage product whereby the Royal Bank would use its derivative technology expertise to marry an interest rate cap with a variable rate mortgage. Key issues to be addressed are the design and the demand of the product and the cost to hedge the capped mortgage. As well, the risks and exposures to Royal Bank would require careful consideration before any decision is made.

Teaching Note: 8A96B10 (13 pages)
Industry: Finance and Insurance
Issues: Risk Management; Financial Institutions; Derivatives; Innovation
Difficulty: 4 - Undergraduate/MBA


Chapter 22:
Cash and Working Capital Management

NORTHSTAR AEROSPACE
James E. Hatch, Chet Wesley

Product Number: 9B02N025
Publication Date: 2/27/2003
Revision Date: 12/5/2009
Length: 8 pages

The account manager at a national bank is reviewing the file of a client - Northstar Aerospace - that wants to renew and increase its line of credit and term loan. Northstar Aerospace is a public conglomerate that had operations in four areas: semiconductors, pumps, aerospace and industrial technology. After a number of years with moderate success, the company reduced its diversity and focused on the aerospace industry. Most of the company's revenue comes from military contracts; however, due to the manufacturing cycle the company was experiencing a backlog of orders worth $260 million. The account manager must size up the business and project the balance sheet and income statement for the upcoming year to decide whether or not to approve the line of credit and if so, what the terms should be.

Teaching Note: 8B02N25 (14 pages)
Industry: Manufacturing
Issues: Financial Projections; Deal Structuring; Bank Lending
Difficulty: 4 - Undergraduate/MBA


Chapter 23:
Accounts Receivable and Inventory Management

SRI OFFICE PRODUCTS INC.
David C. Shaw

Product Number: 9A98N014
Publication Date: 11/20/1998
Revision Date: 3/25/2011
Length: 8 pages

The senior officers of a national office supplies manufacturer and distributor are at odds over a slow payment, and perhaps insolvent, major distributor, and what the options are to collect the account and maintain sales in the region.

Teaching Note: 8A98N14 (8 pages)
Industry: Wholesale Trade
Issues: Credit
Difficulty: 5 - MBA/Postgraduate


Chapter 24:
Financial Planning

LONDON YOUTH SYMPHONY
Craig Dunbar, Colette Southam

Product Number: 9B05N009
Publication Date: 8/12/2005
Revision Date: 10/4/2009
Length: 13 pages

The president of the board of directors of the London Youth Symphony is contemplating how to ensure the survival of the orchestra. On the verge of bankruptcy in 2001, the symphony now has more than $40,000 in the bank, but must address the reality that the orchestra might not survive due to a lack of musicians. Students must develop projected financial statements subject to given minimum balance and breakeven constraints. There is much room for judgment in developing the strategic plan; while many of the numbers are alluded to, many assumptions must also be made. Additionally, students will be exposed to some of the issues that may arise with volunteer boards of directors and not-for-profit organizations.

Teaching Note: 8B05N09 (6 pages)
Industry: Social Advocacy Organizations
Issues: Strategic Change; Non-Profit Organization; Budgeting; Board of Directors
Difficulty: 4 - Undergraduate/MBA



GUANGZHOU GUOWEI PIPED LPG DEVELOPMENT CO. LIMITED
Larry Wynant, Leakey Li

Product Number: 9B01N015
Publication Date: 1/8/2002
Revision Date: 2/6/2002
Length: 15 pages

The associate credit manager of a Hong Kong bank is considering the final terms of a loan package to finance a new liquefied petroleum gas (LPG) vaporizing station for the bank's customer, Guangzhou Guowei. During the past year, the credit manager and her colleagues have been able to assess the company's existing activities and prospects, and the outlook for the new LPG station seems promising. Three key questions will have to be addressed in the credit manager's presentation to the bank's senior management. First, is the proposed interest rate for this loan adequate, given the potential risks the LPG company faces with this new project? Second, would the company's future cash flows be adequate to service the payments of this term loan? And third, what repayment schedule should be recommended? The credit manager decides to develop her own set of pro forma statements as a means of testing the reasonableness of Guangzhou Guowei's plans and to help her decide on an appropriate loan structure.

Teaching Note: 8B01N15 (9 pages)
Industry: Utilities
Issues: China; Bank Lending; Forecasting; Financial Analysis
Difficulty: 4 - Undergraduate/MBA



CHEF’S TOOLKIT INC.
David C. Shaw, Blair Zilkey

Product Number: 9A94B026
Publication Date: 1/22/1995
Revision Date: 2/22/2010
Length: 8 pages

An entrepreneur who is anxious to start a business manufacturing a pasta server requires funds to finance the acquisition of equipment and working capital. A venture capital investor demands a cash budget for the first year of business as well as projected financial statements.

Teaching Note: 8A94B26 (13 pages)
Industry: Manufacturing
Issues: Financial Reports/Disclosure; Cash Budgeting
Difficulty: 4 - Undergraduate/MBA


Chapter 25:
Mergers and Acquisitions

HUSKY ENERGY INCORPORATED
Craig Dunbar, Paul Asmundson

Product Number: 9B02N013
Publication Date: 8/28/2002
Revision Date: 12/5/2009
Length: 19 pages

Two large oil and gas companies agree to merge to form Husky Energy Incorporated. An individual investor has received the information circular with respect to the transaction and has gathered some other information about the merger. She must decide whether the offer is attractive enough for her to vote her proxy in favour of the transaction and tender her shares. The case provides an opportunity for students to evaluate the acquisition from the unique perspective of an individual investor holding shares of the target company. Extensive data is provided on comparable firms and transactions allowing for ratio-based valuation of the transaction. This valuation is complicated by the fact that payment to shareholders consists of both cash and shares. Information is also provided that allows for a general discussion of the takeover process as well as the pros and cons of using a takeover as a means of going public (a reverse takeover).

Teaching Note: 8B02N13 (15 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Financial Strategy; Valuation; Mergers & Acquisitions; Financial Analysis
Difficulty: 4 - Undergraduate/MBA



EMPIRE COMPANY LIMITED: THE OSHAWA GROUP LIMITED PROPOSAL
Thomas W. Bates, Craig Dunbar, Stephen R. Foerster, Chris Lounds

Product Number: 9B00N028
Publication Date: 10/30/2000
Revision Date: 10/8/2013
Length: 25 pages

An associate director at Scotia Capital Markets must make a recommendation to his client, Empire Company Limited (Empire), regarding a possible bid for rival Oshawa Group Limited (Oshawa). Both companies are in the food retail and wholesale business. Empire was based in Atlantic Canada, with an expanding presence in Ontario and Quebec, while Oshawa competes on a national basis. There were increasing public signals and rumors that suggested that Oshawa's controlling shareholders (the Wolfe family), might be willing to entertain an offer for the company. To get a clearer picture of the value of the company, the associate director performed a discounted cash flow analysis and comparable analyses to determine the stand-alone and synergy values of the acquisition target. He also had to consider the methods of financing the acquisition and examine the effect of the ownership structure on the market for corporate control.

Teaching Note: 8B00N28 (14 pages)
Industry: Retail Trade
Issues: Financial Analysis; Acquisition Strategy; Valuation; Mergers & Acquisitions
Difficulty: 4 - Undergraduate/MBA



CANADIAN OCCIDENTAL PETROLEUM LTD.: THE WASCANA ENERGY INC. DECISION
Stephen R. Foerster, G. Andrew Karolyi, Jerry White

Product Number: 9A97N014
Publication Date: 10/24/1997
Revision Date: 2/5/2010
Length: 21 pages

Wascana Energy Inc., an oil and gas producer, had just rejected an unsolicited $1.8 billion takeover offer from Talisman Energy Inc. Rival Canadian Occidental Petroleum Ltd. had gained access to confidential Wascana data in order to determine whether a higher bid than Talisman's was warranted, and if so, how to structure the deal. The acquisition would need to make strategic sense.

Teaching Note: 8A97N14 (15 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Mergers & Acquisitions; Acquisitions; Valuation; Natural Resources
Difficulty: 4 - Undergraduate/MBA


Chapter 26:
Financial Distress

P.A. BERGNER & CO.
Robert W. White, Chris Lane, Will Matthews

Product Number: 9A96B015
Publication Date: 5/14/1996
Revision Date: 2/5/2010
Length: 15 pages

The executive vice-president finance and MIS of P.A. Bergner & Co. (Bergner), a large mid-western U.S.-based department store retailer, received word that Bank One had pulled its $32.1 million letter of credit. Buoyed by the successful acquisition of Boston Stores, Bergner acquired Carson, Pirie Scott & Co. The downturn in the economy coupled with excessive debt levels has precipitated a crisis. The focus of the case is on formulating a restructuring plan, including alternatives under bankruptcy legislation. The analysis requires the determination of Bergner's viability, optimal capital structure, value and reorganization plan. (A Microsoft Excel spreadsheet is available for use with this case, product 7A96B015.)

Teaching Note: 8A96B15 (222 KB)
Industry: Retail Trade
Issues: Valuation; Financial Strategy; Corporate Planning; Bankruptcy
Difficulty: 4 - Undergraduate/MBA


Chapter 27:
International Corporate Finance

THE ANTAMINA COPPER-ZINC PROJECT: POLITICAL RISK INSURANCE
Stephen Sapp

Product Number: 9B02N018
Publication Date: 2/6/2003
Revision Date: 12/5/2009
Length: 20 pages

Compania Minera Antamina S.A. is a consortium of three large multinational Canadian mining companies set up to exploit a very large copper-zinc deposit north central Peru. The project requires about US$2 billion of financing for the development and exploitation of the deposit. The finance committee needs to determine the best means to raise the necessary funds: loans guaranteed by the sponsors or project finance. The costs and benefits are different across alternatives because the project involves both business and political risks to which the exposure for all of the stakeholders is different.

Teaching Note: 8B02N18 (14 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Financing; Political Environment; Risk Analysis; International Finance
Difficulty: 4 - Undergraduate/MBA



RAS LAFFAN: A GLOBAL ENERGY STRATEGY
Ravi Sarathy

Product Number: 9B02N007
Publication Date: 5/30/2002
Revision Date: 12/5/2009
Length: 16 pages

An investment analyst has been asked to evaluate an investment in the project financing for Ras Laffan, a liquefied natural gas venture in the Middle East between Qatar and Mobil Corp. In order to make a suitable recommendation to the investment board, she must present, the potential returns, the various risks and their possible resolutions. Her analysis must address the political risks amid an atmosphere of instability of the Middle East, commodity price risks in an industry with a history of price volatility, possible foreign exchange risks of dealing in two currencies with historic fluctuations and the commercial risks of the reliance on a single customer who will account for 90 per cent of sales. Medium-term non-recourse financing is one option available for financing the project. She also knows that the quality of her analysis may influence whether or not the investment board will consider her capable of running her own fund in the future.

Teaching Note: 8B02N07 (13 pages)
Industry: Utilities
Issues: Joint Ventures; Bonds; Project Management; International Finance; Northeastern
Difficulty: 4 - Undergraduate/MBA



LUFTHANSA: TO HEDGE OR NOT TO HEDGE . . .
Stephen Sapp

Product Number: 9B00N022
Publication Date: 2/2/2001
Revision Date: 1/12/2010
Length: 3 pages

Lufthansa, the flagship German airline, was undertaking an aggressive expansion program. The chairman of the board had negotiated a deal with Boeing for the purchase of 20 new aircraft at a cost of US$500 million. The U.S. dollar was at historic highs and he had to decide how much, if any, of the US$500 million purchase price to hedge and best method to use. Since Lufthansa's revenues were mainly in deutsche marks and this amount was payable in one year, he needed to determine how to deal with the resulting foreign exchange risk by examining principle foreign exchange hedging strategies. Covenants restricting Lufthansa to take on new debt made it critical that he be sure of the financing and risk exposure before finalizing the deal.

Teaching Note: 8B00N22 (6 pages)
Industry: Transportation and Warehousing
Issues: Exchange Rates; Risk Management; International Finance; Hedging
Difficulty: 4 - Undergraduate/MBA