Ivey Publishing

Financial Management: Concepts and Application

Foerster, S. (United States, Pearson, 2015)
Prepared By CaseMate Editor,
Chapter and Title Chapter Matches: Case Information
Chapter 1:
Overview of Financial Management

TESU SZZ D.O.O.
David J. Sharp

Product Number: 9B13B017
Publication Date: 7/31/2013
Revision Date: 7/31/2013
Length: 7 pages

The chief executive officer of Tesu, a small manufacturing company in Croatia, and a consultant hired to solve Tesu's production problems both realize that the company has several problems, the most pressing of which is a shortage of cash. Together, they need to come up with a plan to restore cash flow and improve production efficiencies.

Teaching Note: 8B13B017 (9 pages)
Industry: Manufacturing
Issues: Cash flow; lean manufacturing; turnaround; Croatia
Difficulty: 4 - Undergraduate/MBA



BBC PVT. LTD. AND WORKING CAPITAL CHALLENGES
Nimisha Kapoor, Sandeep Goel

Product Number: 9B12N026
Publication Date: 11/29/2012
Revision Date: 5/31/2017
Length: 6 pages

BBC Pvt. Ltd. (BBC), a chemical manufacturing company, was in urgent need of funds in order to secure an important contract. BBC was able to manufacture a product that involved low investment in the form of fixed assets. Although the product was of an inferior quality due to its cost-effective production, the company was able to pass on that cost advantage to its end customers, enabling BBC to maintain its position in the market. In addition, the company sold the product primarily on credit and was therefore a preferable option for buyers.

BBC followed a traditional approach to working capital management. Its assets were much greater than its liabilities. The company repaid its creditors promptly before the credit period. However, in terms of credit management, the company followed a casual approach. It extended credit sales for large periods and its large inventory in the form of raw material and finished goods resulted in excessive blockage of working capital.

In this case, BBC had the opportunity to pursue a promising contract that would require significant investment immediately. The company’s managing director needed to make a decision about how to obtain and manage adequate funds for the upgrade that BBC needed in order to secure its contract.


Teaching Note: 8B12N026 (7 pages)
Industry: Manufacturing
Issues: Working capital; inventory; accounts receivable; cash management; India
Difficulty: 5 - MBA/Postgraduate


Chapter 2:
Sizing Up a Business: A Nonfinancial Perspective

BCE INC.: FACING THE FUTURE
Stephen R. Foerster, W. Glenn Rowe, Heather Tobin

Product Number: 9B09N015
Publication Date: 9/24/2009
Revision Date: 5/11/2010
Length: 25 pages

BCE Inc. (BCE), one of Canada's leading integrated communications companies, faced numerous challenges. In the key wireless communications market, BCE was trailing its competitors on growth and revenue. BCE's share price was underperforming and shareholders, including the powerful Ontario Teachers' Pension Plan, were becoming concerned. In addition there were regulatory changes on the horizon that could have a serious impact on BCE's wireless division. BCE's chief executive officer (CEO) was faced with the task of improving BCE's competitiveness and shareholder value in a dynamic industry. What options did the CEO and his leadership team have, which ones were better for BCE and how could the better ones be executed in order to satisfy BCE's shareholders? The case provides a good opportunity to assess financial performance and assist in understanding the interaction of strategy and finance.

Teaching Note: 8B09N15 (13 pages)
Industry: Information, Media & Telecommunications
Issues: Value Enhancement; Strategy Development; Strategy Implementation; Financial Analysis
Difficulty: 4 - Undergraduate/MBA



ROYAL MANUFACTURING INC.
Paul M. Bishop, Larry Wynant, Janet Carter

Product Number: 9B05N019
Publication Date: 9/1/2005
Revision Date: 5/23/2012
Length: 10 pages

Royal Manufacturing Inc. requires an extension of its temporary $3 million line of credit. Holdbacks on contracts and several years of losses were causing a cash flow problem. The company and the bank must now assess the company's financial needs.

Teaching Note: 8B05N19 (11 pages)
Industry: Manufacturing
Issues: Bank Lending; Financial Analysis
Difficulty: 4 - Undergraduate/MBA


Chapter 3:
Understanding Financial Statements

NEW GENERAL MANAGER AT ST. THOMAS GOLF AND COUNTRY CLUB
Darroch A. Robertson

Product Number: 9B13B024
Publication Date: 12/3/2013
Revision Date: 12/3/2013
Length: 20 pages

The newly appointed general manager (GM) of a private golf club in a small community must step in to clean house after the club chooses not to renew the previous GM’s contract. The club has suffered a sizable revenue loss during its most recent year, and membership has declined well below the targeted level. Additionally, three senior managers have departed in the last few months and have been replaced with individuals who have very limited experience in the golf industry. The new GM must identify the issues he needs to address, prioritize them and develop an action plan. The golf season is set to begin in less than three months’ time, and the club cannot experience another disastrous financial year.

Teaching Note: 8B13B024 (5 pages)
Industry: Arts, Entertainment, Sports and Recreation
Issues: Financial analysis; priority setting; Canada
Difficulty: 4 - Undergraduate/MBA



PREDICTING A FIRM'S FINANCIAL DISTRESS: THE MERRILL LYNCH CO. STATEMENT OF CASH FLOWS
Danielle Morin, Julien Lemaux, Dominique Hamel

Product Number: 9B12B011
Publication Date: 5/30/2012
Revision Date: 5/30/2012
Length: 14 pages

During the night of September 14, 2008, a few hours before Lehman Brothers folded, Merrill Lynch declared defeat: it was acquired by Bank of America (BofA). Unsure of its ability to continue as a standalone entity, Merrill Lynch ended 90 years of independence. Before its buyout by BofA, Merrill Lynch was the world’s largest and most widely recognized stockbroker. It dominated retail stockbroking with its army of 16,000 brokers around the world. At the start of 2008, Merrill Lynch, Goldman Sachs, Morgan Stanley, Lehman Brothers, and Bear Stearns were the five largest standalone investment banks, with a combined total history of 549 years. But within a span of six months, they would all be gone as independent investment banks. Some observers wondered whether any early signs of the financial distress that the investment firm industry experienced in 2008 could be seen in the financial statements published in the years preceding the acquisition of Merrill Lynch. In addition, was there merit in evaluating the performance of the company from an angle other than that of operating results, which is typically used by financial analysts? Specifically, would there be value in an assessment of the company’s performance by scrutinizing the origin and use of its liquid assets for the years 2005, 2006, and 2007? Such an investigation would require focus on the statements of cash flows, including the need to:
  • Evaluate the cash situation at year-end.
  • Analyze cash flows provided (used) by operating activities.
  • Analyze cash flows provided (used) by investment activities.
  • Analyze cash flows provided (used) by financing activities.


Teaching Note: 8B12B011 (7 pages)
Industry: Finance and Insurance
Issues: 2008 Financial Crisis; Financial Prediction; Cash Flows Statement; Merrill Lynch; Financial Statements Analysis; Bank Performance Analysis; United States
Difficulty: 4 - Undergraduate/MBA



BNL STORES
Vaughan S. Radcliffe, Paul Cruz

Product Number: 9B12B027
Publication Date: 9/18/2012
Revision Date: 4/12/2013
Length: 6 pages

The case requires students to conduct a financial analysis of BNL Stores, a retail business. Case materials include a multi-year balance sheet, an income statement and statement of cash flows data. Students will prepare and interpret selected ratios, and prepare a basic statement of cash flows.The case entails use of financial statement analysis, balance sheets and income statements to provide a complete picture of an organization's financial health. Data for the case are disguised and are drawn from the published financial statements of a major retailer that went bankrupt. The collapse of companies in similar circumstances influenced the Financial Accounting Standards Board's moves to require a statement of cash flows and was historically significant.

Teaching Note: 8B12B027 (4 pages)
Industry: Retail Trade
Issues: Cash Flow; Ratio Analysis; Financial Statements; Bankruptcy, United States
Difficulty: 4 - Undergraduate/MBA


Chapter 4:
Measuring Financial Performance

LENOVO GROUP LIMITED - A GOOD INVESTMENT FOR THE FUND?
Craig Dunbar, Stephen R. Foerster, Ken Mark

Product Number: 9B13N017
Publication Date: 7/26/2013
Revision Date: 11/22/2013
Length: 17 pages

A portfolio manager for Penhall Investment Funds was reviewing the financial data his team had prepared on Lenovo Group Limited (Lenovo), one of the major holdings in Penhall’s Global fund. Lenovo wanted to become more than just the largest manufacturer of PCs by volume. It aimed to become a leader in other devices, such as smartphones and tablets, and it was focusing on innovation as a key capability. The portfolio manager was impressed by Lenovo’s results so far; the stock was up 7.5 per cent in a year. However, given the decline in the traditional PC segment, the competitive nature of the industry and global economic conditions, he wondered if Lenovo should continue to be a key holding in the global fund.

Teaching Note: 8B13N017 (12 pages)
Industry: Finance and Insurance
Issues: Valuation; Ratio Analysis; Investments; Equity Research; United States; China; Global
Difficulty: 4 - Undergraduate/MBA



LOBLAW COMPANIES LIMITED: ANALYZING AN ANNUAL REPORT 2012
Murray J. Bryant

Product Number: 9B13B008
Publication Date: 4/2/2013
Revision Date: 4/2/2013
Length: 4 pages

The systematic analysis of an annual report of a large Canadian public company provides a framework and a set of skills and concepts to determine whether it is worth investing in the company. The detailed examination of the annual report includes an analysis of profitability — including return on capital employed, return on equity, return on sales, gross profit margin and asset turnover — and liquidity measures.

Teaching Note: 8B13B008 (3 pages)
Industry: Retail Trade
Issues: Financial Reporting; Canada
Difficulty: 5 - MBA/Postgraduate



7-ELEVEN IN THAILAND
Sundaravaradhan Venkatesh, Sandhya Bhatia

Product Number: 9B13B021
Publication Date: 12/9/2013
Revision Date: 12/6/2013
Length: 11 pages

CP 7-Eleven is a prominent retail chain in Thailand. The analysis of the financial statements for the year 2011 revealed that while the earnings per share increased, the return on equity (ROE) declined. The company had negative working capital. It exerted strong bargaining power over its suppliers and customers and had efficient inventory management. It had been accumulating cash and other liquid assets over the last few years and it expanded in a well-planned manner, with almost 500 new stores every year. However, the company was viewed as having a lot of “fat” on its balance sheet. It was necessary to trim the fat and enhance ROE. The company needed to focus on strategies for future growth.

Teaching Note: 8B13B021 (9 pages)
Industry: Retail Trade
Issues: Ratio analysis; Thailand
Difficulty: 4 - Undergraduate/MBA


Chapter 5:
Managing Day-to-Day Cash Flow

GARRY HALPER MENSWEAR LIMITED: A LOAN REQUEST FOR AN EXPORT ORDER
James E. Hatch, Stephen R. Foerster, Steven Cox, Manpreet Hora

Product Number: 9B13N010
Publication Date: 5/1/2013
Revision Date: 4/18/2017
Length: 17 pages

Garry Halper Menswear Limited (GHM) is a medium-sized manufacturer of superior-quality men’s suits and jackets that up to now have largely been distributed in Canada. The firm has landed a very large order for men’s suits with Sutton’s in the United States. To meet the order, the firm has decided to import partly completed suits from China. The treasurer of GHM must assess the financing needs and related risks that result from this large increase in sales. At the same time, he believes that the company’s present bank is timid in its response to the firm’s needs, and he would like to consider another banking relationship.

Teaching Note: 8B13N010 (17 pages)
Industry: Retail Trade
Issues: Exporting; Foreign Currency Exposure; Working Capital; Lending; Canada; United States; China
Difficulty: 4 - Undergraduate/MBA



NCB OFFICE PRODUCTS INC.
Paul M. Bishop, David C. Shaw, Janet Carter

Product Number: 9B05N020
Publication Date: 9/26/2005
Revision Date: 6/22/2012
Length: 8 pages

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

Teaching Note: 8B05N20 (8 pages)
Industry: Wholesale Trade
Issues: Credit; Financial Analysis
Difficulty: 4 - Undergraduate/MBA



MOTOROLA (CHINA) - CREDIT CONTROL
David J. Sharp, Jonathan Yang

Product Number: 9B01B024
Publication Date: 1/8/2002
Revision Date: 12/7/2009
Length: 10 pages

Motorola (China) Electronics Ltd. is a division of Motorola, Inc., a global leader of integrated communication and embedded electronic solutions. When the senior operations controller of Motorola (China) returns from several weeks of sick leave, he is met with a weighty problem. The company's accounts receivable, which usually run at terms of no more than eight weeks, have been grinding along at a term of about 13 weeks during the manager's absence. The question is: what can the operations officer do to bring accounts receivable back under control, given the already challenging set of constraints within the Chinese credit climate? With no formal credit system in place for businesses in China, and with tight governmental controls on several other areas of finance in the country, the issue of triangular debt - individuals owing money to small businesses that, in turn, owe money to large businesses - is a huge problem in the Chinese marketplace. No credit information is available to banks and businesses that are trying to establish some form of credit system for their customers. Delinquent debts and defaulted bank loans are common, and an atmosphere of suspicion surrounds any credit transaction. The operations controller's challenge is to establish an action plan that is immediate and effective, and that navigates around some of the roadblocks that present constant challenges to business in China.

Teaching Note: 8B01B24 (4 pages)
Industry: Manufacturing
Issues: China; Credit; Control Systems; Financial Management
Difficulty: 4 - Undergraduate/MBA


Chapter 6:
Projecting Financial Requirements and Managing Growth

SPRUCE LAWN FARMS: THE IP BEAN OPPORTUNITY
Mark B. Vandenbosch, Ron Anderson

Product Number: 9B14N001
Publication Date: 1/9/2014
Revision Date: 8/15/2014
Length: 10 pages

The owner/operator of Spruce Lawn Farms, a cash crop farm located near London, Ontario, was thinking of expanding his operation to include identity-preserved soybeans and a grain dryer. The farm had been in operation for 12 years and consisted of 650 acres of owned land with plans to increase this through renting neighbouring fields to 2,000 acres by 2015. Current crops included genetically modified winter wheat, corn and soybeans, but given the growing backlash against genetically modified foods in Europe and Asia, he was considering adding certified identity-preserved soybeans as well. His back-of-the-envelope calculations seemed to indicate that the venture would pay off. However, when he approached his financial institution for a loan, they were concerned about how the new venture would change the farm's financial structure.

Teaching Note: 8B14N001 (9 pages)
Industry: Agriculture, Forestry, Fishing and Hunting
Issues: Financial structure; investment; cash flow planning; lender relationships; Canada
Difficulty: 4 - Undergraduate/MBA



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



PEAK ROOFING COMPANY
James E. Hatch, Stephen Sapp

Product Number: 9B00N026
Publication Date: 2/27/2001
Revision Date: 10/15/2012
Length: 12 pages

The account manager at the Confederation Bank was contemplating a loan request from Peak Roofing, a wholesale and retail distributor of roofing supplies. The funds would be used to add a new branch to its existing three Montreal sites. This was an opportunity to steal Peak Roofing's business from a competitor, but he knew he had to put together a careful analysis of the risks and opportunities to get the deal approved. To do so, he needed to size-up the business, create projected financial statements and structure a deal for both a term and operating loan.

Teaching Note: 8B00N26 (15 pages)
Industry: Manufacturing
Issues: Forecasting; Deal Structuring; Bank Lending
Difficulty: 4 - Undergraduate/MBA



COW’S LONDON
Stephen R. Foerster, Rob Barbara

Product Number: 9A95B027
Publication Date: 10/18/1995
Revision Date: 2/11/2010
Length: 8 pages

James and Serena Udderlie were preparing a loan application to the Confederation Bank of Canada. They were requesting a $160,000 term loan, in addition to an operating loan, for the potential opening of a Cow's ice cream and clothing franchise. They needed to develop proforma income statements and balance sheets for the store's first two years of operation. They also wondered what collateral, if any, they would be able to provide the bank to secure against a loan, and what other terms the bank might deem necessary.

Teaching Note: 8A95B27 (7 pages)
Industry: Accommodation & Food Services
Issues: Bank Lending; Loan Evaluation; Financing
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 7:
Time Value of Money Basics and Applications

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



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


Chapter 8:
Making Investment Decisions

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



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



CAPRO GROUP: A GROWTH STORY
Anshul Jain, Pratap Chandra Biswal

Product Number: 9B12N020
Publication Date: 9/21/2012
Revision Date: 4/29/2013
Length: 9 pages

CAPRO Group is a small electrical engineering services firm operating out of New Delhi, India. In December 2011, with falling revenues due to macroeconomic conditions and increasing competition, the firm’s owner and founder appoints his son to look into restructuring the business. The electrical distribution control panel manufacturing and installation industry is highly fragmented, with only a few big firms and many small firms. Most firms specialize in one niche of the industry, whether it be manufacturing of equipment or panels, installation, or consultancy services. Different niches require different inputs in terms of labour, finances, and technical knowledge. Given the labour problems in India, combined with the country’s spiraling interest rates and slowing economic growth, the owner’s son must decide on a plan to bring his company out of its current slump.

Teaching Note: 8B12N020 (12 pages)
Industry: Manufacturing
Issues: Family Business; Macroeconomic Slowdown; SWOT; Net Present Value; Internal Rate of Return; India
Difficulty: 5 - MBA/Postgraduate


Chapter 9:
Overview of Capital Markets: Long-Term Financing Instruments

INMET MINING CORPORATION: CORPORATE BOND ISSUANCE
Craig Dunbar, David Hatch

Product Number: 9B13N021
Publication Date: 10/9/2013
Revision Date: 10/9/2013
Length: 18 pages

The chief financial officer (CFO) of Inmet Mining Corporation is considering the pricing and structure of a $500 million bond offering in late 2012. The company required capital to fully fund construction at its biggest asset, the Cobre Panama copper mine, which had been estimated at $6.2 billion dollars. Now, it was preparing yet another bond offering that would ensure these capital cost requirements would be met. Complicating matters was the fact that a competitor, First Quantum Minerals, had made a $70 per share offer to purchase the company in November 2012. The CFO has to weigh options and structure the bond offering accordingly.

Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Bonds; Takeover; Canada
Difficulty: 4 - Undergraduate/MBA



WAS INSIDER TRADING AHEAD OF TAKEOVERS A PROBLEM?
Stephen R. Foerster, Michael R. King, Fatma Sonmez

Product Number: 9B12N021
Publication Date: 9/11/2012
Revision Date: 9/11/2012
Length: 7 pages

On January 6, 2010, Stanko Grmovsek was sentenced to three years and three months in prison for making profits of an estimated US$9 million over 14 years based on insider tips from his best friend from law school, Gil Cornblum. Grmovsek and Cornblum had operated an illegal insider trading scheme from 1994 until 2008. Using his role as a corporate lawyer at various law firms, Cornblum had passed material non-public information related to 46 takeovers to Grmovsek, who then traded illegally using brokerage accounts located in the Bahamas and Ontario. On October 27, 2009, Grmovsek pleaded guilty to all charges against him in both Canada and the United States following a joint investigation by the U.S. Securities and Exchange Commission (SEC) and the Ontario Securities Commission (OSC).

Teaching Note: 8B12N021 (13 pages)
Industry: Finance and Insurance
Issues: Insider Trading; Ethics; Capital Markets; Securities Regulation; Canada; United States
Difficulty: 4 - Undergraduate/MBA



TELUS CORPORATION: CAPITAL STRUCTURE MANAGEMENT
Paul M. Bishop, Larry Wynant, Ken Mark

Product Number: 9B06N020
Publication Date: 11/23/2006
Revision Date: 3/20/2012
Length: 21 pages

The chief financial officer (CFO) of TELUS Corporation (Telus) has just been informed that Moody's, a bond rating service, has downgraded the firm's credit rating to one notch below investment grade. The CFO's challenge is to determine what specific actions, if any, to recommend to the firm's audit committee. First, this case facilitates a discussion on how changes in capital structure impact a firm's earnings, stock price and flexibility to carry out plan. Second, students learn about how bond ratings are set and how a firm's bond rating affects its bond yield. Last, by focusing on the situation faced by Telus during challenging market conditions in 2002, students learn how to manage relationships with investors while in the midst of change.

Teaching Note: 8B06N20 (14 pages)
Issues: Financial Planning; Cash Flow; Financial Strategy
Difficulty: 5 - MBA/Postgraduate



BORDERS HOTEL CORP.
David C. Shaw, John A. Humphrey, Richard Nason

Product Number: 9B01B034
Publication Date: 7/23/2002
Revision Date: 12/7/2009
Length: 5 pages

The president of a new hotel venture faces a financing decision. The choices include: mortgage debt, common stock, or preferred and common stock. The president has to balance the impact of the financing alternatives on the viability of the venture, her investment returns, the investment returns of prospective outside investors and the financial and business risks.

Teaching Note: 8B01B34 (9 pages)
Industry: Accommodation & Food Services
Issues: Risk Analysis; Sensitivity Analysis; Debt Policy; Equity Financing
Difficulty: 4 - Undergraduate/MBA



T. EATON COMPANY LIMITED'S INITIAL PUBLIC OFFERING
Craig Dunbar, Stephen R. Foerster, Ahmed Arif

Product Number: 9A98N024
Publication Date: 1/29/1999
Revision Date: 2/2/2010
Length: 27 pages

Canada's largest privately owned department store, The T. Eaton Company Limited, founded in 1869, had recently emerged from bankruptcy protection and was now planning to raise $175 million through an initial public offering (IPO). Investment bankers must determine the appropriate share price and consider the appropriateness of the timing for the issue. The case describes North American retail industry trends and the bankruptcy protection process, and provides a detailed discussion of the IPO process and valuation considerations. Detailed comparables are provided for such firms as Federated, Nordstrom's and Dillard. The case provides an opportunity to apply a number of valuation techniques including discounted cash flow, price-to-earnings multiples and enterprise value-to-EBITDA multiples.

Teaching Note: 8A98N24 (16 pages)
Industry: Retail Trade
Issues: Investment Analysis; Initial Public Offerings; Valuation; Retailing
Difficulty: 4 - Undergraduate/MBA


Chapter 10:
Assessing the Cost of Capital: What Return Investors Require

FROZEN FOOD PRODUCTS: COST OF CAPITAL
S.K. Mitra

Product Number: 9B12N028
Publication Date: 11/22/2012
Revision Date: 11/20/2012
Length: 6 pages

Maria D’souza planned to expand her business by introducing a new product line of frozen foods. She wanted to estimate the attractiveness of the new expansion by estimating net present value (NPV) of the expected cash flows. Her main concern was to find a suitable discount rate to be applied to cash flows to ascertain the NPV of the project.

D’souza’s consultant friend asked her to analyze cost of capital of similar companies operating in the same industry. The basic principle in this case is that firms in the same industry often have similar customers, operations and assets; therefore they have similar business risks and should have similar costs of capital.


Teaching Note: 8B12N028 (8 pages)
Industry: Accommodation & Food Services
Issues: Cost of capital; capital structure; net asset value; discounting rate; India
Difficulty: 5 - MBA/Postgraduate



ENCANA CORPORATION: THE COST OF CAPITAL
James E. Hatch, Larry Wynant, Ken Mark

Product Number: 9B07N002
Publication Date: 4/2/2007
Revision Date: 6/18/2010
Length: 7 pages

Two managers attending a week-long executive education course are working on an assignment which requires them to estimate the cost of capital for EnCana Corporation, a leading North American oil and gas producer. The two managers disagree about which costs need to be taken into account to complete the assignment. They are not sure about the costs of different sources of capital, the overall cost of capital and the appropriate use of the hurdle rate.

Teaching Note: 8B07N02 (9 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Cost of Capital; Valuation; Financial Analysis
Difficulty: 4 - Undergraduate/MBA



MTR CORPORATION LIMITED: MEASURING THE COST OF CAPITAL
Larry Wynant, Stephen R. Foerster, Ken Mark

Product Number: 9B07N001
Publication Date: 3/16/2007
Revision Date: 11/18/2013
Length: 11 pages

Two MTR Corporation (MTRC) managers are participating in a week-long program in financial management. For their next class, they need to calculate the cost of capital for MTRC. First, they will review the concepts of investor expectations and cost of capital. Then, they must calculate the cost of capital by using the financial statements provided to them by the instructor. The two managers discuss their understanding of these concepts as they prepare their assignment, which is due in two hours.

Teaching Note: 8B07N01 (10 pages)
Industry: Transportation and Warehousing
Issues: Capital Structure; Capital Expenditure Analysis; Cost of Capital; Capital Budgeting
Difficulty: 4 - Undergraduate/MBA


Chapter 11:
Understanding Financing and Payout Decisions

HAG'S SINGAPORE NOTE ISSUE
Sundaravaradhan Venkatesh

Product Number: 9B13N004
Publication Date: 9/9/2013
Revision Date: 8/19/2013
Length: 13 pages

In May 2011, Hoang Anh Gia Lai (HAG), a leading real estate company in Vietnam, was going to issue US$90 million of 9.875 senior notes (a debt instrument) in Singapore, due 2016. The company estimated the net proceeds from this offering, after deducting underwriting discounts, commissions and other estimated expenses, to be approximately US$80.7 million. From the perspective of an analyst at a brokerage firm who was monitoring HAG, there were many questions of interest arising from the note issue. These included the cost of the debt and the reasons why HAG chose to raise the money in Singapore, and not in Vietnam. What was the cost at which HAG was borrowing through the Singapore note issue? Was HAG’s level of borrowing, after the note issue, exceeding the optimal level? What was the likelihood that HAG would be downgraded within a year from its B rating from Standard and Poor’s? How would the risk to HAG’s equity be affected as a result of the issue? Would HAG’s stock price decline? The brokerage firm analyst needed to decide whether her firm should offload its equity holding in the company.

Teaching Note: 8B13N004 (6 pages)
Industry: Real Estate and Rental and Leasing
Issues: International finance; emerging markets; cost of capital; Vietnam
Difficulty: 5 - MBA/Postgraduate



TELUS CORPORATION: DIVIDEND POLICY
Paul M. Bishop, Larry Wynant, Ken Mark

Product Number: 9B08N007
Publication Date: 7/4/2008
Revision Date: 4/4/2008
Length: 21 pages

The vice-president (VP) and treasurer of TELUS has been asked by the chief financial officer for his opinion on the company's dividend policy and how many recommendations would be conveyed to investors. In developing his response, the VP needs to consider TELUS's future prospects, its leverage policy, the state of the telecommunications industry, and investor expectations. This case facilitates a discussion on dividend policy. Conventional wisdom on dividend policy can be reviewed and then interpreted in the context of the particular circumstances facing TELUS. The case can also facilitate a short discussion on the costs and benefits of share repurchase.

Teaching Note: 8B08N07 (10 pages)
Industry: Administrative, Support, Waste Management and Remediation Services
Issues: Dividend Policy; Financial Analysis; Debt Policy
Difficulty: 5 - MBA/Postgraduate



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


Chapter 12:
Designing an Optimal Capital Structure

SERVICEFORCE: SCALING UP FINANCING
Hitesh J Shukla, Ashutosh Dash

Product Number: 9B13N019
Publication Date: 10/3/2013
Revision Date: 10/2/2013
Length: 17 pages

The founder of ServiceForce, a company that provides repair and maintenance for motorized two-wheel vehicles in India, has a dilemma about whether he should sell the rights of his franchisee business, join hands with a venture capitalist, borrow money for capacity building or see the business grow through franchising. The start-up was initiated with his own money and family investment. A mere 18 months has shown great success with two service stations, a mobile workshop to service rural and industrial clients and a system of card packages that allow customers to pre-pay for a range of services. The company is a recognized brand for customer satisfaction and quality workmanship, and the employees are happy and contribute to the company well-being by participating in customer promotion schemes. However, competition from both vehicle manufacturers’ service stations and unorganized garages is growing in tandem with the skyrocketing sales of two-wheel vehicles, especially to the younger demographic. In order to grow, the company is at a crossroads: should it borrow money to ramp up the growth of the business through new capacity building or invest in more franchises? Should the owner accept the offer to buy the franchise rights from him outright or the offer from a venture capitalist, which will result in losing some control?

Teaching Note: 8B13N019 (21 pages)
Industry: Retail Trade
Issues: Valuation of start-up; venture capital; managing growth; India
Difficulty: 4 - Undergraduate/MBA



GRANITE APPAREL: FUNDING AN EXPANSION
James E. Hatch, Larry Wynant, Ken Mark

Product Number: 9B10N028
Publication Date: 11/1/2010
Revision Date: 11/18/2010
Length: 13 pages

The chief financial officer of Granite Apparel is trying to determine which of the three fundraising options is optimal for Granite Apparel to finance a projected rapid growth strategy. The three options are an initial public offering of equity, a privately placed debt issue and a private placement of preferred shares.

Teaching Note: 8B10N28 (11 pages)
Industry: Manufacturing
Issues: Financial Analysis; Financial Strategy; Funding
Difficulty: 5 - MBA/Postgraduate



ROCKY MOUNTAIN HIGH SKI RESORT (RMH)
David C. Shaw, Blair Zilkey

Product Number: 9A94B021
Publication Date: 8/4/1995
Revision Date: 2/22/2010
Length: 17 pages

The vice president of finance at Rocky Mountain High Ski Resort Inc. (RMH) was examining the alternatives for financing a proposed $25 million expansion. The well-known Western Canadian all-season resort planned to add several new runs, additional snowmaking capacity, another high-speed quad chair lift, a 700-seat restaurant, a new retail ski equipment store, and upgrades to the existing infrastructure. The directors of RMH were scheduled to meet in two weeks to approve both the proposed expansion and financing plans.

Teaching Note: 8A94B21 (11 pages)
Industry: Arts, Entertainment, Sports and Recreation
Issues: Financing; Financial Analysis; Risk/return Tradeoff; Comparative Analysis
Difficulty: 4 - Undergraduate/MBA


Chapter 13:
Measuring and Creating Value

FACEBOOK, INC.: THE INITIAL PUBLIC OFFERING (A)
Deborah Compeau, Craig Dunbar, Michael R. King, Ken Mark

Product Number: 9B12N031
Publication Date: 1/25/2013
Revision Date: 3/13/2014
Length: 20 pages

It was May 16, 2012, and the highly anticipated pricing of Facebook Inc.’s initial public offering (IPO) was underway. An analyst at CXTechnology Fund was preparing to speak to the lead underwriter about his final interest in the deal. The analyst had reviewed Facebook’s phenomenal growth, its profitable business model and the competitive landscape for the social networking industry. The IPO appeared to be oversubscribed with heavy interest from institutional and retail investors alike, but the valuation seemed expensive, even by technology standards. The analyst needed to make a decision on whether to buy shares in the IPO or not. A spreadsheet for students is available, product 7B12N031.

Teaching Note: 8B12N031 (13 pages)
Industry: Information, Media & Telecommunications
Issues: IPO; Equity; Corporate Finance; Social Media; United States
Difficulty: 4 - Undergraduate/MBA



LULULEMON ATHLETICA: PITCHING AN IPO
Larry Wynant, James E. Hatch, Ken Mark

Product Number: 9B11N012
Publication Date: 8/17/2011
Revision Date: 11/7/2011
Length: 14 pages

The managing director at a major investment bank is preparing his team for a visit to Lululemon Athletica, a yoga-inspired athletic apparel company. The investment bank has been following Lululemon’s development over the past few years and is impressed by the company’s unique positioning and rapid growth. The bank believes that there is a window of opportunity for Lululemon’s founder and private equity investors to either undertake an initial public offering or raise debt to fund Lululemon’s U.S. expansion.

Teaching Note: 8B11N012 (15 pages)
Issues: Valuation; Private Equity; Initial Public Offering; Yoga; Athletic Apparel
Difficulty: 4 - Undergraduate/MBA



FINCHCO
James E. Hatch, Mike Pooley

Product Number: 9B11N005
Publication Date: 4/8/2011
Revision Date: 2/5/2013
Length: 13 pages

The owner of Finchco plans to sell his company, which is a distributor of industrial materials. The purpose of the case is to utilize several valuation methods and suggest the possible deal structure. The situation is made somewhat more complicated because Finchco has a real estate subsidiary that must be valued, and because the company has a great opportunity to land a major new customer whose value must be included in the analysis.

Teaching Note: 8B11N005 (11 pages)
Industry: Wholesale Trade
Issues: Deal Structuring; Valuation Methods; Industrial Materials; Quebec and Ontario, Canada
Difficulty: 4 - Undergraduate/MBA



BCE INC.: IN PLAY
Stephen R. Foerster, Heather Tobin

Product Number: 9B09N018
Publication Date: 9/24/2009
Revision Date: 1/25/2010
Length: 16 pages

BCE Inc. (BCE), one of Canada's leading telecommunications companies, had struggled under its weak stock price performance and low valuation relative to its comparable peers, and faced increasing pressure from its largest shareholder, the powerful Ontario Teachers' Pension Plan (Teachers'). On March 29, 2007, it was reported that private equity firm Kohlberg Kravis & Roberts (KKR) had held informal meetings with BCE executives in the hopes of launching a friendly takeover bid for the company. This essentially put BCE in play with the leadership team confirming, on April 17, 2007, that it would be reviewing its strategic alternatives, which included discussions with various Canadian-led consortiums to explore the possibility of a privatization. As the deadline to the bid date drew closer, four contending bidding consortiums emerged, including three consortiums of financial buyers and one strategic buyer. The case provides a good opportunity to discuss private equity investments as well as valuation in a mergers and acquisition context. This case is a follow-up to Ivey case BCE Inc.: Facing the Future, product # 9B09N015.

Teaching Note: 8B09N18 (17 pages)
Issues: Private Equity; Mergers & Acquisitions; Financial Strategy; Valuation
Difficulty: 4 - Undergraduate/MBA



PRIVATE EQUITY AT WORK: PURCHASING CAKE MASTERS
Craig Dunbar, Ken Mark, Michael Comisarow

Product Number: 9B06N007
Publication Date: 6/21/2006
Revision Date: 9/23/2008
Length: 13 pages

An entrepreneur must decide if he should bid to acquire a commercial bakery, Cake Masters, given his objectives in his search and his investors' expected returns of 20-30 per cent. If he bids, he must decide how much to bid and in what form of consideration. Students are introduced to valuation methodologies and will evaluate an acquisition or opportunity, understand the process of acquiring a small company, learn how preceding transactions are considered and learn about discounted cash flow analysis.

Teaching Note: 8B06N07 (8 pages)
Industry: Manufacturing
Issues: Entrepreneurial Finance; Valuation; 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



OXFORD LEARNING CENTRES INC.: THE CHILDTIME ALTERNATIVE
Craig Dunbar

Product Number: 9A98N013
Publication Date: 4/30/1999
Revision Date: 11/17/2011
Length: 14 pages

Canada-based Oxford Learning Centres (OLC) entered into a licensing agreement with U.S.-based Childtime Learning Centers (Childtime) where Childtime would operate OLC supplemental education programs in their facilities. In less than six months, Childtime decided to make an offer to purchase OLC. OLC's CEO must decide how to approach the impending negotiations. The case describes the North American supplement education industry, valuation considerations and private firm purchase negotiations. Detailed comparables are provided for such firms as Sylvan Learning Systems and Corporate Family Solutions. The case provides an opportunity to apply a number of valuation techniques including discounted cash flow, and multiples based on comparable firms and transactions.

Teaching Note: 8A98N13 (12 pages)
Industry: Educational Services
Issues: Mergers & Acquisitions; Joint Ventures; Education; Valuation
Difficulty: 4 - Undergraduate/MBA



SCOTT'S HOSPITALITY INC. - EVA
James E. Hatch, John Manning, John McCartney

Product Number: 9A96B034
Publication Date: 5/15/1996
Revision Date: 2/5/2010
Length: 17 pages

The vice president, finance of a firm notes that although performance of the firm as measured by traditional accounting measures has steadily improved, share price has been decreasing. She attempts to employ the concept of economic value added to get to the bottom of the puzzle.

Teaching Note: 8A96B34 (22 pages)
Industry: Other Services
Issues: Financial Strategy; Economic Value Added; Value-based Management; Performance Evaluation
Difficulty: 4 - Undergraduate/MBA


Chapter 14:
Comprehensive Case Study: Wal-Mart Stores, Inc.

VALUING WAL-MART STOCK
Stephen R. Foerster

Product Number: 9B06N009
Publication Date: 2/16/2006
Revision Date: 3/30/2012
Length: 14 pages

An investment advisor at a major brokerage is considering whether she should recommend Wal-Mart stock to her clients who do not currently have this stock in their portfolios. Students will be presented with basic valuation concepts including the dividend discount model, price-earnings model and applications of the capital asset pricing model.

Teaching Note: 8B06N09 (13 pages)
Industry: Finance and Insurance
Issues: Financial Analysis; Stock Market; Securities; Investment Analysis
Difficulty: 4 - Undergraduate/MBA