Ivey Publishing

Corporate Finance

Ross, S.; Westerfield, R.; Jaffe, J.,10/e (United States, McGraw-Hill Irwin, 2013)
Prepared By Athena Ngai, CaseMate Editor
Chapter and Title Chapter Matches: Case Information
Chapter 1:
Introduction to Corporate Finance

THE RISE AND FALL OF AIG
Stephen Sapp

Product Number: 9B12N001
Publication Date: 1/27/2012
Revision Date: 1/27/2012
Length: 13 pages

The Global Financial Crisis (2007-2009) has provided fertile ground for careful consideration of how the financial services industry operates. For many years it had been asserted that markets can self-police so that regulation and careful oversight are not required. The events from the crisis have caused many of the strongest proponents of this view, such as Alan Greenspan (former chairman of the Federal Reserve), to publicly acknowledge the problems with this belief. This case considers the events leading up to and following the bailout of AIG to allow for a discussion of how different internal and external factors contributed to the crisis at AIG, and the importance of studying each of them more carefully to avoid such problems in the future.

Teaching Note: 8B12N001 (8 pages)
Industry: Finance and Insurance
Issues: Financial Risk Management; Leadership; Enterprise Risk Management; United States
Difficulty: 4 - Undergraduate/MBA



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



BRISTOL-MYERS SQUIBB COMPANY - MANAGING SHAREHOLDERS' EXPECTATIONS
Murray J. Bryant, Tapasvi Narula

Product Number: 9B05B008
Publication Date: 10/13/2005
Length: 14 pages

A senior accountant at Bristol-Myers Squibb has to assess the appropriateness of revenue recognition as the company has dramatically altered its relationships with its channel customers. The decision maker has to determine not only appropriateness but the right approach to deal with senior management on the issue.

Teaching Note: 8B05B08 (6 pages)
Industry: Manufacturing
Issues: Communications; Ethical Issues; Revenue Recognition; Accounting - Transactions
Difficulty: 4 - Undergraduate/MBA


Chapter 2:
Financial Statements and Cash Flow

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



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



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 3:
Financial Statements Analysis and Financial Models

ELLINGTON INDUSTRIAL SUPPLY INC.
David G. Burgoyne, John A. Humphrey, Olga Richardson

Product Number: 9A99N022
Publication Date: 11/30/1999
Revision Date: 1/21/2010
Length: 7 pages

A machine tools distributor is planning to build an extension onto its warehouse. The owner is concerned how to source the $100,000 required to finance the expansion. Options include borrowing from a bank, borrowing from a private lender, or issuing shares. This case is intended to introduce students to financial analysis. The concepts of ratio analysis, projected statements and debt repayment are central to the case. The case requires students to draft a set of projected statements to determine the amount of required financing, assess the financial health of the company and its ability to take on more debt.

Teaching Note: 8A99N22 (6 pages)
Industry: Manufacturing
Issues: Bank Lending; Financial Analysis
Difficulty: 2 - Intro/Undergraduate



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



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 4:
Discounted Cash Flow Valuation

SINYI CORPORATION EXPANSION STRATEGY IN CHINA
James E. Hatch, Mia Twu

Product Number: 9B12N006
Publication Date: 5/9/2012
Revision Date: 5/9/2012
Length: 10 pages

The president of SinYi Group was contemplating various ways of growing his highly successful Taiwanese real estate company in the mainland China market. SinYi had initially opened up company-operated branches and in 1999, in an effort to expand more quickly, he had obtained a Coldwell Banker master franchise under a joint SinYi/Coldwell brand. But SinYi’s growth in company-operated and franchised branches in China was still slow. He was considering whether he should establish a new company to run the franchise business exclusively using the Coldwell brand and reserve the SinYi brand for company-owned branches. This new approach would require a revision to the agreement with Coldwell Banker, which the president would need to evaluate.

Teaching Note: 8B12N006 (11 pages)
Industry: Real Estate and Rental and Leasing
Issues: Franchising; Real Estate; Discounted Cash Flow; Foreign Investment; Entry Strategy; Taiwan; China
Difficulty: 4 - Undergraduate/MBA



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



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 5:
Net Present Value and Other Investment Rules

ZETA MINING: WALKING THE DRAGLINE
Scott McCarthy

Product Number: 9B13N025
Publication Date: 2/6/2014
Revision Date: 1/20/2014
Length: 4 pages

Zeta Mining, one of the world's largest producers of metallurgical coal, operates a number of mines in the Bowen Basin, Central Queensland, Australia. The company has invested about AU$8 billion in the region. Before extracting the coal, the overburden of dirt, rock and other geological waste has to be removed, and this is usually done by draglines, which are imported from the United States and constructed on site, requiring a significant investment in time and money. In 2012, Zeta’s chief financial officer tasked the Bowen Basin project evaluation director to decide whether to "walk" one of the 3,400-tonne draglines six kilometres to another mine or to employ external contractors to remove that mine's overburden. To do so, the director was required to perform an incremental comparison analysis using net present value methodology. The CFO will then use the analysis and any other relevant factors in making a final decision.

Teaching Note: 8B13N025 (6 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Net present value; Australia
Difficulty: 4 - Undergraduate/MBA



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



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 6:
Making Capital Investment Decisions

EXCELERITE INTEGRATED SYSTEMS, INC. (EIS)
Wesley Marple

Product Number: 9B08N006
Publication Date: 3/6/2008
Revision Date: 2/26/2010
Length: 6 pages

A sales representative for Monster Computer Corporation was working with the head of data processing of a major account to develop a financial justification for the company to purchase $9 million of computer and storage hardware and other peripherals, which would replace an existing data processing installation. The potential customer had estimated the savings to be achieved by the new equipment. Working with this estimate and financial information about the client company, the sales representative must undertake a rigorous capital budgeting analysis to help the potential customer sell the project to the financial people in the company. The case provides students with an opportunity to analyze a simple capital expenditure. They are required to develop a discount rate, based upon costs of funds, and to utilize that discount rate to value the cash flows expected. Information is provided about the likelihood of receiving the expected cash flows, so that expected NPV and IRR values may be determined. There is ample room for discussion about the costs of debt and equity to use the weights to be applied. Additionally, the affect of expected inflation must be factored into the analysis.

Teaching Note: 8B08N06 (8 pages)
Issues: Taxation; Cost of Capital; Capital Budgeting; Depreciation; Northeastern
Difficulty: 4 - Undergraduate/MBA



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



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 7:
Risk Analysis, Real Options, and Capital Budgeting

JP MORGAN: LESSONS LEARNED
Stephen Sapp

Product Number: 9B12N024
Publication Date: 9/25/2012
Revision Date: 9/24/2012
Length: 6 pages

Following the revelation of a US$2 billion loss on trading at JP Morgan’s chief investment office (CIO) in London, the company’s board of directors is tasked with recommending changes to its risk management practices and corporate governance structure. The case provides background on JP Morgan's well-respected risk management infrastructure and discusses how the CEO focused on its historic strength in risk management to argue against the need for the United States to implement the strict regulations contained in the Dodd-Frank Act and the associated Volcker Amendment. The role of regulation is significant. As a result of trying to meet the tighter requirements of these U.S. standards as well as the new Basel III accord, the CIO took on significant derivative positions that were not well understood and, rather than decreasing the firm's risk exposure, actually increased it. Of further interest is the concurrent change in JP Morgan's method of calculating risk, which allowed for a significant reduction in risk measurement and thus an improvement in the firm's level of risk-weighted assets.

Teaching Note: 8B12N024 (9 pages)
Industry: Finance and Insurance
Issues: Risk Management; Derivative Securities; Financial Regulation; United States; United Kingdom
Difficulty: 4 - Undergraduate/MBA



FORTUNE MINERALS — THE NICO PROJECT
Chris Sturby, Melissa Jean

Product Number: 9B11B012
Publication Date: 8/19/2011
Length: 15 pages

A publicly traded mining company has an opportunity to develop a mine containing gold, cobalt, and bismuth in Canada’s Northwest Territories and must determine the financial viability of doing so. In order to gauge the attractiveness of the project, the company needs to evaluate the net present value of the opportunity, given volatile and uncertain variables, such as commodity prices and foreign exchange rates. The company must also consider a number of qualitative considerations that may affect the project, such as relations with First Nations communities.

Teaching Note: 8B11B012 (10 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Capital Budgeting; Net Present Value; Valuation; Mining; First Nations Communities; Aboriginal; Canada
Difficulty: 4 - Undergraduate/MBA



AGNICO-EAGLE MINES LTD.
George Athanassakos, Dan Buffery

Product Number: 9B07N011
Publication Date: 10/4/2007
Length: 27 pages

The senior portfolio manager at National Securities Inc. (National) is concerned about the recent decline in shares of Agnico-Eagle Mines Ltd (AEM), a Canadian gold producer with several years of precious metals mining experience that was considered one of the portfolio's strongest performers. The senior portfolio manager and his team recently spent time at one of AEM's mines and believed in the operational potential of the company. National's research department had prepared free cash flow forecasts for AEM, which the senior portfolio manager reviewed and modified, following their visit with the company. He knew that despite his team's belief in the future prospects of AEM, the stock may have become overvalued from a fundamental view point. The senior portfolio manager asked his team to perform a fundamental valuation of the equity of AEM. As normally, this meant the team would use the discounted cash flow (DCF) methodology, with financial assumptions that had been carefully examined. However, he knew that DCF valuation would likely undervalue resource companies, such as AEM, as the DCF valuation tended to overlook the flexibility provided at decision nodes during the life of the company with regards to extracting commodities from the ground. As a result, the senior portfolio manager reminded the team that the DCF method, when applied to a mining company, had to be expanded to explicitly include the value of the un-mined metals. The underground un-mined gold would need to be valued as a real option, using an adjusted Black-Scholes model.

Teaching Note: 8B07N11 (12 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Cash Flow; Valuation; Real Options; Cash Flow Analysis; Business Valuation
Difficulty: 5 - MBA/Postgraduate


Chapter 8:
Interest Rates and Bond Valuation

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



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



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


Chapter 9:
Stock Valuation

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



DELL INC. - INVESTMENT STRATEGY
Larry Wynant, Ken Mark

Product Number: 9B08N026
Publication Date: 10/23/2008
Revision Date: 2/1/2013
Length: 14 pages

At the start of August 2008, Dell Inc. (Dell) seems to be at a critical juncture. Michael Dell's return a year and a half ago has brought significant change to the company, including a focus on growing market segments, a shift in the company's distribution strategy, and an emphasis on design in Dell's product lineup. Despite these changes, Dell's stock price has lost value since Michael's return. A portfolio manager is trying to assess if Michael Dell's return to the helm of Dell Inc. and the company's shift in distribution strategy will turn around the company's stock price. To support his analysis, the portfolio manager has asked his team to assemble comparative financial data on Dell and its key competitors. The portfolio manager wants to know if he should buy, hold or sell Dell's shares. There are three teaching objectives for this case: assess financial performance using financial statements and financial ratios; identify cash flow and profit drivers; and identify the determinants of value and stock price.

Teaching Note: 8B08N26 (7 pages)
Industry: Manufacturing
Issues: Financial Strategy; Forecasting; Financial Analysis
Difficulty: 5 - MBA/Postgraduate



BURGUNDY ASSET MANAGEMENT: THE WESCAST INVESTMENT DECISION
Stephen R. Foerster, Brian Huen

Product Number: 9B03N016
Publication Date: 9/25/2003
Revision Date: 10/22/2009
Length: 15 pages

The investment manager at Burgundy Asset Management had been given the responsibility to assess the investment opportunity presented by Wescast Industries Inc., a large automotive parts supplier that specializes in the design and manufacture of the exhaust manifold for all types of vehicles. The investment manager knew that his investment team would expect a detailed analysis of Wescast and a recommendation on the investment opportunity. He realized that he must move quickly in order to complete the analysis and prepare a preliminary recommendation for his team at the meeting the next week.

Teaching Note: 8B03N16 (11 pages)
Industry: Finance and Insurance
Issues: Investments; Investment Funds; Portfolio Management; Investment Analysis
Difficulty: 4 - Undergraduate/MBA


Chapter 10:
Risk and Return: Lessons from Market History

CANADA PENSION PLAN: INVESTING IN EQUITIES
Zeigham Khokher, Walid Busaba, Ken Mark

Product Number: 9B09N017
Publication Date: 9/23/2009
Length: 20 pages

The Canada Pension Plan Investment Board (CPPIB) is asked to provide an opinion about the risk and return characteristics of an all-equity portfolio. The CPPIB is analyzing the potential of investing in other asset classes because of the potential for increased returns over the long-run. The Canada Pension Plan's assets currently completely comprise federal and provincial bonds and short-term securities.

Teaching Note: 8B09N17 (7 pages)
Industry: Public Administration
Issues: Bonds; Stock Market; Securities; Financial Analysis
Difficulty: 4 - Undergraduate/MBA



ONTARIO TEACHERS' PENSION PLAN BOARD: THE ASSET ALLOCATION DECISION
Stephen R. Foerster, Dean Tzembelicos

Product Number: 9A97N003
Publication Date: 1/29/1997
Revision Date: 2/5/2010
Length: 13 pages

In 1994, William Booth, a member of the management team of the Ontario Teachers' Pension Plan Board, was asked to re-examine the diversification strategy that the $30 billion fund had been pursuing since its inception and to determine an optimal long-term asset allocation policy for the fund. After inheriting a portfolio that consisted entirely of fixed-income securities in 1990, by the end of 1993, the allocation to equity was only 20% short of a 1995 interim policy target of 66%. Booth's primary task was to determine whether the shift in asset mix should stop at 66% equity in 1995, which was above the allocation to equities for the average pension plan, or whether it should continue to some higher amount (an independent consultant recommended an 80% allocation to equity). Booth knew that a higher allocation to equities would likely increase total returns over the long-term, thereby reducing the cost of funding the plan. However, equities exhibited greater volatility than bonds and a higher allocation to equities therefore created some risk that future funding costs might rise above current levels.

Teaching Note: 8A97N03 (11 pages)
Industry: Finance and Insurance
Issues: Portfolio Management; Assets; Investment Analysis; Pensions
Difficulty: 4 - Undergraduate/MBA


Chapter 11:
Return and Risk: The Capital Asset Pricing Model (CAPM)

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



ALEX SHARPE'S PORTFOLIO
Colette Southam

Product Number: 9B08N020
Publication Date: 7/29/2008
Revision Date: 5/10/2017
Length: 4 pages

Alex Sharpe's Portfolio provides an introduction to the Capital Asset Pricing Model (CAPM), portfolio diversification and risk management. Sharpe currently holds the Vanguard 500 Index Fund, but is considering a more active management strategy. Students must assess the risk of the two stocks she is considering adding to her portfolio. Students are provided with monthly stock returns and must calculate the standard deviations of the individual stocks and of the portfolios when one of the stocks is added to it. Students must calculate the stock's beta using regression and will learn that beta is the appropriate measure of risk to use in decision making since risk-averse investors do not hold stocks in isolation.

Teaching Note: 8B08N20 (7 pages)
Industry: Finance and Insurance
Issues: Regression Analysis; Portfolio Management; Funds Management; Risk Management
Difficulty: 3 - Undergraduate



VALUING WAL-MART 2010
Stephen R. Foerster, James E. Hatch, Cyrus Zahedi

Product Number: 9B11N004
Publication Date: 4/8/2011
Revision Date: 9/14/2016
Length: 14 pages

An equity analyst uses a variety of methods to value Wal-Mart shares with a view to making a buy/sell or hold recommendation for the stock. Her key task is to use an intrinsic value approach to price the shares and to then compare the resulting price with the price at which the stock is traded in the market.

Teaching Note: 8B11N004 (9 pages)
Industry: Retail Trade
Issues: Stock Valuation; Equity Analysts; Price to Earnings; Capital Asset Pricing; Forecasting
Difficulty: 4 - Undergraduate/MBA


Chapter 12:
An Alternative View of Risk and Return: The Arbitrage Pricing Theory

POTATO BONDS: REGULATING SPURIOUS DERIVATIVE INSTRUMENTS
Srinivasan Sunderasan

Product Number: 9B13N024
Publication Date: 2/19/2014
Revision Date: 10/6/2015
Length: 13 pages

Potatoes are grown across 130 countries and form the largest non-cereal food crop consumed in large per-capita measures in some of the Eastern European and South American countries. India is the world’s third-largest producer of the crop and is estimated to consume about 25 million tonnes each year. Calcutta-based Sumangal Industries Limited launched a high yield investment program under the banner of the Flexi-Potato Purchase Scheme. Market regulator, Securities and Exchange Board of India (SEBI), took exception to the company’s collecting uncollateralized deposits from the members of the public without due registration, and issued prohibitive orders.

This case puts the facts underlying the offering in perspective and conducts a micro-economic analysis to assess the strengths of the business proposition. The statistical analyses reveal that the volatility and predictability of seasonal pricing patterns that the company seeks to exploit may not continue beyond the short-term. Further, the early success of the scheme is likely to attract entry into the segment, thereby squeezing arbitrage margins and enhancing business process costs. This case also lays out facts relating to exogenous influences on the local potato market and encourages policy makers to adequately inform potential investors as a means to empower them to make sound resource allocation decisions. The conclusions of the case could be applied beyond West Bengal, and beyond India, to other agricultural produce and pyramidal investment schemes, qualified by local conditions.


Teaching Note: 8B13N024 (9 pages)
Industry: Agriculture, Forestry, Fishing and Hunting
Issues: Economic regulation; pyramidal investments; ponzi scheme; microeconomic equilibrium; India
Difficulty: 4 - Undergraduate/MBA



RANBAXY ACQUISITION BY DAIICHI SANKYO
Rama Seth, P. Srikant Ayyar

Product Number: 9B12N022
Publication Date: 12/4/2012
Revision Date: 11/26/2012
Length: 12 pages

This case presents a trading situation arising out of the acquisition of Ranbaxy Laboratories Limited, an Indian pharmaceutical firm, by Daiichi Sankyo, Inc., a Japanese pharmaceutical firm, in 2008. After buying out the Ranbaxy’s founding family’s stake in the company, Daiichi Sankyo made a partial tender offer bid for the remaining shares of Ranbaxy. The uncertainty as to whether or not the deal would go through and what the eventual acceptance rate would be resulted in a special situation investment opportunity. In the case, a risk arbitrageur needs to evaluate this potential opportunity and determine an appropriate trading strategy. Key decisions include whether to buy or sell the target stock and when to implement this purchase or sale. In this way, the case presents an unfolding situation augmented with a rich set of relevant secondary data such as news and stock prices, so that students are exposed to a real trading situation. The case requires students to understand market mechanisms and perform detailed analyses to justify their decisions.

Teaching Note: 8B12N022 (11 pages)
Industry: Finance and Insurance
Issues: Trading decisions; risk arbitrage; takeover bids; derivatives; India
Difficulty: 4 - Undergraduate/MBA



CYPRESS SEMICONDUCTOR CORPORATION AND SUNPOWER CORPORATION
Martin Dirks

Product Number: 9B09N016
Publication Date: 10/14/2009
Length: 4 pages

This case provides a means to illustrate enterprise valuation analysis questions such as: 1) Given a stock price, what is the implied value attributable to the operating business? 2) Given a valuation multiple for an operating business, what is the implied target stock price? In addition, the case 1) illustrates how arbitrage acts to enforce the law of one price and keep markets efficient 2) provides a model case to understand why stocks can become mispriced 3) shows application of a stub valuation analysis 4) provides an illustration of a common hedge fund strategy (long/short equity) 5) show how to calculate margin requirements for a portfolio containing both long and short positions 6) illustrates the effects of leverage and capital requirements on investment returns 7) provides an example framework to calculate risk in a complex investment position.

Teaching Note: 8B09N16 (13 pages)
Industry: Finance and Insurance
Issues: Portfolio Management; Investments; Investment Analysis; Investment Funds; Valuation; Securities
Difficulty: 4 - Undergraduate/MBA


Chapter 13:
Risk, Cost of Capital, and Valuation

LAB INTERNATIONAL INC.
James E. Hatch, David Jagodzinski

Product Number: 9B09N011
Publication Date: 5/14/2009
Length: 23 pages

LAB International (LAB) has two divisions that have vastly different strategies. The research and development division has a continuing need for funding and a high degree of risk, while the contract research division is a cash generator and is less risky. LAB is attempting to raise additional capital but believes that the shares of the company are undervalued in the market. It is contemplating a spinoff of one of the divisions to raise the funds and to make each company more of a pure play and therefore to achieve a more appropriate market valuation. Students must assess the merits of this strategy and place a value on the spinoff.

Teaching Note: 8B09N11 (27 pages)
Industry: Manufacturing
Issues: Health Sector; Initial Public Offerings; Financing; Financial Strategy
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



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


Chapter 14:
Efficient Capital Markets and Behavioral Challenges

NORTHAMPTON GROUP INC.: HOW TO INCREASE SHAREHOLDER VALUE
Stephen Sapp, Kamal Patel

Product Number: 9B11N007
Publication Date: 5/25/2011
Length: 21 pages

The case examines the issues faced by a hotel management and development company as it tries to increase the return to its shareholders. The firm’s major shareholders have commented that they believe the firm is currently under-valued, so management is considering several means of unlocking extra value. Due to difficult economic conditions resulting from the global economic crisis, there are many opportunities as well as many risks to the alternatives the company is considering. The case provides the opportunity to use several different valuation methods to determine if the company is, in fact, undervalued. It also leads to a discussion of several alternatives for unlocking value, including starting an active acquisition strategy or re-organizing the corporate structure with either an updated capital structure or conversion to a real estate income trust.

Teaching Note: 8B11N007 (11 pages)
Industry: Accommodation & Food Services
Issues: Real Estate; Valuation; Financial Analysis; Corporate Structure; Income Trust; Canada
Difficulty: 4 - Undergraduate/MBA



RUDY WONG, INVESTMENT ADVISOR
Stephen R. Foerster, Jimmy Rogers

Product Number: 9B10N004
Publication Date: 1/15/2010
Revision Date: 11/1/2010
Length: 21 pages

With stock markets in major decline, Rudy Wong, an investment advisor for a wealth management firm had to decide how best to reassure each of his clients in upcoming meetings: by communicating logical arguments based on his portfolio management expertise and analysis, or by managing emotions and attempting to re-establish his clients' faith in the markets. He also needed to re-examine the investment strategy he had developed for each client and recommend that they either stay the course with current strategies or make changes. The case allows for a rich discussion of the role of investment advisors, the importance of asset allocation, active versus passive management, investment goal setting, the global financial crisis of 2007-2009, and application of behavioral finance issues such as biases, reliance on heuristics, and framing.

Teaching Note: 8B10N04 (14 pages)
Industry: Finance and Insurance
Issues: Investments; Financial Crisis; Stock Market; Personal Financial Planning
Difficulty: 4 - Undergraduate/MBA


Chapter 15:
Long-Term Financing: An Introduction

GLOBAL REMEDIATION: FUNDING FUTURE GROWTH
Stephen Sapp

Product Number: 9B13N007
Publication Date: 4/30/2013
Revision Date: 3/19/2015
Length: 9 pages

A small startup firm in the environmental services industry has spent the majority of its time developing its technology and overcoming the significant regulatory hurdles involved in bringing its technology to market. Having achieved success with the technology, the company must now decide which path to take to grow. The owners can try to raise the money themselves through a bank loan and do the expansion on their own terms. On the other hand, they can forge a financial partnership with a venture capital firm or a strategic partnership with another firm, or they can issue preferred shares to a local investment fund or corporate bonds to a local insurance company. These alternatives will share the risks and expense of expansion, but the company may lose some autonomy in its decision making in future.

Teaching Note: 8B13N007 (9 pages)
Industry: Administrative, Support, Waste Management and Remediation Services
Issues: Capital Raising; Debt; Equity; Venture Capital; Canada
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



PAREX BANKA: ISSUING A 200 MILLION BOND
Basil A. Kalymon, Jordan Mitchell

Product Number: 9B07N009
Publication Date: 8/3/2007
Length: 26 pages

After successfully issuing a €100 million Eurobond in 2005, executives at Parex Banka (Parex) in Riga, Latvia are considering issuing a second bond with a face value of €200 million and a term of 5 years. In planning the bond issue, the bank is debating the bond's characteristics, such as the currency (Euro versus U.S. dollar), the spread they would initially offer and how they would approach the meeting with potential investors. Students are tasked with assessing the bank's financing needs and recommending whether the bond should be issued and if so, its currency and price.

Industry: Finance and Insurance
Issues: Financial Strategy; Financial Institutions; Bonds
Difficulty: 4 - Undergraduate/MBA


Chapter 16:
Capital Structure Basic Concepts

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



HUTCHISON WHAMPOA LIMITED: THE CAPITAL STRUCTURE DECISION
G. Andrew Karolyi, Larry Wynant, Geoff Crum, Peter Yuan

Product Number: 9A99N021
Publication Date: 9/30/1999
Revision Date: 1/21/2010
Length: 24 pages

Hutchison Whampoa was considering strategies for its long-term capital structure. The HK$35 billion Hong Kong-based conglomerate had ambitious growth plans in multiple business sectors in different geographies. Traditionally, like many of its domestic peers, Hutchison had relied entirely on short to medium-term bank loans. Its demand for long-term financing, attractive rates in other capital markets (especially the U.S.) and concern about a more diversified investor base had led Hutchison to explore other financing options. In particular, the company was debating the benefits of a Yankee Bond Offering. At the time, Hutchison had already approached Moody's and Standard & Poor's for a bond rating.

Teaching Note: 8A99N21 (12 pages)
Industry: Finance and Insurance
Issues: International Finance; Financial Strategy; Capital Budgeting
Difficulty: 4 - Undergraduate/MBA


Chapter 17:
Capital Structure: Limits to the Use of Debt

LEHMAN BROTHERS' FALL
Ram Kumar Kakani, Vasudha Singhania, Martin Stack

Product Number: 9B12B005
Publication Date: 5/4/2012
Revision Date: 5/1/2012
Length: 12 pages

This case describes the financial undertakings of Lehman Brothers Inc., which was once the fourth-largest investment bank in the world. On September 15, 2008, less than a year after the bank presented its largest profit ever, the world watched its decline. In terms of size of assets, Lehman is considered the largest bankruptcy in history, with assets totaling US$639 billion and liabilities of US$613 billion. The U.S. credit crisis had uprooted the strength of Wall Street, with Lehman announcing a petition it filed under Chapter 11 of the U.S. Bankruptcy Code. The bankruptcy raised some interesting questions, the biggest among them being: How could a large company such as Lehman, with a record of reporting huge profits, become so helpless that it had to file for bankruptcy?

Undoubtedly, the financial scenario in the United States had become dire, especially for those companies involved in mortgage banking. Lehman had some additional drawbacks. This case deals with a couple of these problems, one of them being the accountancy of its Repo 105 transactions. The modus operandi of the company has been unveiled to show how it managed to hide its true financial state through gaps in the financial reporting system and remain clean-handed for years.


Teaching Note: 8B12B005 (14 pages)
Industry: Finance and Insurance
Issues: Financial Reporting Standards; Accounting Transactions and Practices; Bankruptcy; Banking; Wall Street; United States; United Kingdom
Difficulty: 4 - Undergraduate/MBA



NORTH VILLAGE CAPITAL PRIVATE EQUITY
James E. Hatch, Richard Lam

Product Number: 9B10N010
Publication Date: 5/21/2010
Length: 11 pages

An analyst for a private equity firm has been asked to design a capital structure for the leveraged buyout of a security alarm company. Students are provided with an extensive financial model, which facilitates the analysis. Key issues in the case involve the design of covenants for the debt instruments and determining which alternative financing arrangement leads to the best rate of return while managing the level of risk.

Teaching Note: 8B10N10 (7 pages)
Industry: Administrative, Support, Waste Management and Remediation Services
Issues: Leveraged Buyout; Private Equity
Difficulty: 4 - Undergraduate/MBA



B/E AEROSPACE, INC.
Wesley Marple

Product Number: 9B09N010
Publication Date: 6/26/2009
Revision Date: 2/26/2010
Length: 15 pages

B/E Aerospace, Inc., (BEAV) the market leader for cabin interior products for commercial aircraft and business jets, and a leading aftermath distributor of aerospace fasteners, was reviewing its financial strategy. BEAV was a heavily leveraged company in the cyclical aircraft products industry. Its business had been threatened by the terrorist act of September 11, 2001, the epidemic of SARS in 2003 and the war in Iraq in 2004. These events discouraged Americans from flying, bankrupting airlines and reducing their investments in aircraft. The company sold 18.4 million shares of common stock, raising $156 million to pay down some of its high-cost debt, reduce interest expense and achieve a more balanced capital structure. Still, after restructuring, debt on a pro-forma basis would constitute 79 per cent of its long-term capital. The chief financial officer was considering a more appropriate debt target and how the company might achieve it. Further, he was contemplating a $50 million reduction in debt from available cash. Students are to recommend a target capital structure and steps to achieve it. Data are available to apply theoretical and practical approaches to making recommendations in advanced undergraduate and graduate courses.

Teaching Note: 8B09N10 (13 pages)
Industry: Manufacturing
Issues: Financial Strategy; Leverage; Cost of Capital; Taxation; Northeastern
Difficulty: 4 - Undergraduate/MBA


Chapter 18:
Valuation and Capital Budgeting for the Levered firm

VALUING RAJAT BHATIA’S BUSINESS PLAN
S.K. Mitra

Product Number: 9B11N011
Publication Date: 9/12/2011
Length: 7 pages

A final-year student at a business school estimated the net present value (NPV) of his proposed business plan — a tourism and transport business in India — using three different methods and encountered different valuation results. He approached the professor who had taught him valuation concepts in a finance course and wanted to know the reasons for the difference.

Teaching Note: 8B11N011 (10 pages)
Industry: Other Services
Issues: Business Valuation; Capital Budgeting; Cost of Capital; Net Present Value Method; Entrepreneurial Finance; India
Difficulty: 5 - MBA/Postgraduate



H&R REIT - FINANCING THE BOW
Chris Sturby

Product Number: 9B09B016
Publication Date: 9/24/2010
Revision Date: 5/4/2017
Length: 13 pages

This case is based on a Canadian real estate trust's need to obtain financing for a large capital expenditure at a time when credit markets have effectively frozen. Students are asked to evaluate the trust's financial statements to determine the amount of financing required, and then to evaluate alternatives in order to meet the financing gap. Students are also asked to value the project by using basic present-value techniques.

Teaching Note: 8B09B016 (8 pages)
Industry: Real Estate and Rental and Leasing
Issues: Financial Statement Analysis; Valuation of Real Estate
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



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


Chapter 19:
Dividends and Other Payouts

PRADA: TO IPO OR NOT TO IPO: THAT IS THE QUESTION
Stephen Sapp

Product Number: 9B12N017
Publication Date: 8/17/2012
Revision Date: 9/5/2012
Length: 19 pages

Prada currently requires a significant amount of capital both to re-finance debt that is maturing in the next six to twelve months and to finance its intended growth into the Asian (especially Chinese) markets. Since financial markets are aware of Prada’s pressing need to raise capital, it is important for the board of directors to develop a credible strategy for raising the necessary capital of at least €1 billion. Although the press has been suggesting that Prada will do an initial public offering, the company has tried this several times in the past with no success, mainly because of bad timing (9/11, the SARS outbreak, and the ongoing global financial crisis and European sovereign debt crisis). The board has approached Guido Santini of the investment bank Grupo Capo Milano to come up with a number of credible alternatives and a strategy for raising the needed capital.

Teaching Note: 8B12N017 (8 pages)
Issues: International Finance; Capital Raising; IPO, Italy; Hong Kong
Difficulty: 4 - Undergraduate/MBA



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



FINNING TRACTOR AND EQUIPMENT COMPANY LIMITED
David C. Shaw, David Porter

Product Number: 9A84B013
Publication Date: 1/1/1984
Revision Date: 5/20/2003
Length: 16 pages

President and CEO of Finning Tractor, has seen the earnings of the company drop below profitable levels because of a deep recession. Several restraint measures were instigated with little apparent impact. The case takes place at the point where a decision is impending on dividend policy with issues ranging from effect on stock price to the fact that the two majority shareholders may be adverse to taking a cut in the over $1.5 million in dividend income they were receiving annually.

Teaching Note: 8A84B13 (4 pages)
Industry: Construction
Issues: Dividend Policy
Difficulty: 4 - Undergraduate/MBA


Chapter 20:
Raising Capital

MELCO CROWN ENTERTAINMENT: ROLLING THE DICE AND OTHER WAYS TO RAISE CAPITAL
Stephen Sapp, Matthew Gray

Product Number: 9B12N018
Publication Date: 8/31/2012
Revision Date: 2/13/2014
Length: 15 pages

The case deals with how the investment banker advising the chief financial officer of Melco Crown Entertainment Limited (MCEL), a casino and entertainment company based in Macau, will suggest the company finance two new gaming resorts currently under construction. The development of these properties has stopped because of insufficient funding, and project timelines have started to be questioned. A decision regarding the best means to raise the necessary capital needs to be made quickly or MCEL may not be able to capitalize on the lucrative, growing gaming market in Macau. The advice must consider both the immediate need to raise capital to get the projects back on track as well as the need for long-term financial flexibility to take advantage of future opportunities. The case considers a variety of domestic and international options to determine what best meets MCEL's needs.

Teaching Note: 8B12N018 (13 pages)
Industry: Other Services
Issues: International Finance; Capital Raising; ADR; Macau; Hong Kong; United States
Difficulty: 4 - Undergraduate/MBA



RSSWORKS INC. - AN EARLY STAGE INVESTMENT
Stewart Thornhill, Tevya Rosenberg

Product Number: 9B09M010
Publication Date: 1/20/2009
Length: 7 pages

RSSWorks Inc. represents a very early stage funding opportunity - the business model has not been decided. The case provides an introduction to the thinking behind seeking first external funding for an early stage founder-funded company. Students will gain an overview of how a very early stage company gets going and begins to operate by exploring the funding options open to a company at this early stage, considering the needs and wants of the founders and the potential funders, and assessing a company at this early stage. The case also introduces the notion of an ecosystem for technology companies and its role in the success or failure of early stage companies, and the idea of launching on the cheap.

Teaching Note: 8B09M10 (4 pages)
Industry: Administrative, Support, Waste Management and Remediation Services
Issues: Deal Structuring; Fund Raising; Entrepreneurial Finance; Venture Capital
Difficulty: 4 - Undergraduate/MBA



HUANENG POWER INTERNATIONAL INC.: RAISING CAPITAL IN GLOBAL MARKETS
G. Andrew Karolyi, Stephen R. Foerster, Jerry White

Product Number: 9A98N001
Publication Date: 3/5/1998
Revision Date: 2/1/2010
Length: 22 pages

Huaneng Power International (HPI), an independent power producer in the People's Republic of China (PRC), is in the process of executing a global equity issue to raise funds for the construction of new power plants. The company is planning to list the new shares through an American Depositary Receipt program on the New York Stock Exchange. The company has recently reduced the price of the issue due to poor market conditions and investor resistance to the price range stated in the preliminary prospectus. HPI's management must decide whether the new offer price and choice of listing exchange is reasonable in light of recent market events and the political, economic, social and technological environment in the PRC.

Teaching Note: 8A98N01 (19 pages)
Industry: Utilities
Issues: China; Valuation; Initial Public Offerings; International Finance
Difficulty: 4 - Undergraduate/MBA


Chapter 21:
Leasing

LEVUKA SPORT FISHING INC.
Elizabeth M.A. Grasby, Robert Bremner

Product Number: 9B13B006
Publication Date: 4/3/2013
Revision Date: 4/21/2016
Length: 5 pages

The chief financial officer (CFO) and major shareholder of a small charter sport fishing company must prepare the company books for the fiscal year according to international financial reporting standards (IFRS) rules. The CFO must deal with both finance and operating leases.

Teaching Note: 8B13B006 (6 pages)
Industry: Arts, Entertainment, Sports and Recreation
Issues: Accounting Transactions; Accounting Methods; Accounting Principles; Lease Accounting; Fiji
Difficulty: 1 - Introductory



STARBUCKS: VENTI LEASES
Vaughan S. Radcliffe, Mitchell Stein, Caleb Yong

Product Number: 9B11B014
Publication Date: 8/19/2011
Length: 19 pages

This case depicts a financial analyst trying to make sense of Starbucks’ finances and drawing from recent projects of the IASB and FASB to identify lease accounting as a key issue for the firm. The case underscores the importance of having a full picture of a company’s obligations in order to understand its overall performance.

In reviewing the case, students examine Starbucks’ extensive use of leases and use spreadsheet tools to understand the full extent of the corporation’s indebtedness. Although heavy users of leases such as Starbucks have argued that lease accounting is complex, an estimation of lease indebtedness can be made using relatively simple tools that are easy for students to understand. The case allows issues of high-level accounting standards to be elucidated, using a well-known company with which students identify. The case illustrates the real-world consequences of accounting policy choices.


Teaching Note: 8B11B014 (3 pages)
Industry: Accommodation & Food Services
Issues: Accounting; Financial Management; Accounting Standards; Leases; Debt; Coffee
Difficulty: 4 - Undergraduate/MBA



AIR CANADA: BOND RATINGS AND OFF-BALANCE SHEET OPERATING LEASES
Christine I. Wiedman, Heather Wier

Product Number: 9B03B009
Publication Date: 8/6/2003
Revision Date: 10/15/2009
Length: 18 pages

An investor is considering investing in Air Canada bonds after reading an article on the attractiveness of the bonds. Trading at US$0.80 on the dollar, the bonds are yielding approximately 14 per cent. The investor must conduct some financial analysis on her own to assess whether the company's financial position has improved or deteriorated since a bond rating downgrade eight months ago. She must also evaluate how off-balance sheet operating leases would affect the analysis. The case illustrates how financial statement users can use lease disclosures to restate financial statements to fully reflect liability arising from operating leases.

Teaching Note: 8B03B09 (11 pages)
Industry: Transportation and Warehousing
Issues: Corporate Financial Reporting; Leasing; Accounting Methods
Difficulty: 4 - Undergraduate/MBA


Chapter 22:
Options and Corporate Finance

MICHAEL STEVENS' OPTION STRATEGY
Stephen R. Foerster, Sherwin Shao

Product Number: 9A91B025
Publication Date: 1/1/1991
Revision Date: 4/1/2002
Length: 12 pages

Michael Stevens was examining his blue chip stock portfolio and the market outlook for the next six months. He was wondering if he could use some options strategies - buying individual stock puts, writing individual stock calls, writing index calls, or buying index puts - to protect his paper profits and perhaps even improve his return.

Teaching Note: 8A91B25 (11 pages)
Industry: Finance and Insurance
Issues: Stock Market; Investments; Hedging
Difficulty: 4 - Undergraduate/MBA


Chapter 23:
Options and Corporate Finance: Extensions and Applications

BAFFINLAND IRON MINES CORPORATION
Craig Dunbar, David Wood, Ken Mark

Product Number: 9B12N029
Publication Date: 12/17/2012
Revision Date: 12/17/2012
Length: 24 pages

Partners in Nunavut Iron Ore Acquisition Inc. (Nunavut), an entity that had been set up to bid for control of Baffinland Iron Mines Corporation (Baffinland), are forced to respond to a rival bid. Baffinland owned the Mary River project, one of the most significant iron ore reserves in Canada, and had been trying to develop the project since 2004, but the number of prospective mining and financing partners declined following the onset of the global financial crisis in 2007. Baffinland’s share price tumbled as a result of its inability to move the project forward, falling from over $4.68 in October 2007 to $0.17 cents in 2008. In September 2010, sensing an opportunity to pick up an asset at a distressed price, Nunavut, backed by a private equity firm in the United States, had sparked a bidding war for Baffinland against ArcelorMittal, a Belgium-based steel company.

Teaching Note: 8B12N029 (15 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Valuation; Synergies; Mergers and Acquisitions; Game Theory; Canada
Difficulty: 4 - Undergraduate/MBA



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



CNS COMPANY
James E. Hatch, Chris K. Anderson, Soren Milo Christensen, Christen Hagelund

Product Number: 9B04N004
Publication Date: 3/4/2004
Revision Date: 8/8/2005
Length: 12 pages

CNS is a small biotech company. The founder of the company is deciding if it's worth applying for phase I approval that will allow the company to continue its research. He must determine the value of the research. Using the traditional DCF valuation method, he is not sure if this captures all of the value of the research and must decide if either the Black-Scholes or binomial model would more accurately determine the value.

Teaching Note: 8B04N04 (6 pages)
Industry: Manufacturing
Issues: Real Options; Valuation; Data Analysis
Difficulty: 4 - Undergraduate/MBA


Chapter 24:
Warrants and Convertibles

TATA STEEL LIMITED: CONVERTIBLE ALTERNATIVE REFERENCE SECURITIES (B)
Vasant Sivaraman, Mayank Joshipura, Adithya Anand

Product Number: 9B10N032
Publication Date: 1/7/2011
Length: 12 pages

This is a supplement to Tata Steel Limited: Convertible Alternative Reference Securities (A). Tata Steel’s launch of a convertible bond offering in exchange for its convertible alternative reference securities issued in 2007 was in response to shifts in environmental factors. An analysis of the offer allows for a valuation exercise and an assessment of a capital restructuring decision that considers the interests of the issuer and of the investors.

Teaching Note: 8B10N32 (23 pages)
Industry: Manufacturing
Issues: Refinancing; Capital Structure; Strategy; Investor Relations; Valuation; Securities; Bonds; India
Difficulty: 5 - MBA/Postgraduate



TATA STEEL LIMITED: CONVERTIBLE ALTERNATIVE REFERENCE SECURITIES (A)
Vasant Sivaraman, Adithya Anand

Product Number: 9B08N001
Publication Date: 4/1/2008
Revision Date: 1/12/2011
Length: 17 pages

Shortly after the acquisition of Corus in 2007, Tata Steel Limited entered the international markets with a convertible bond offering (CARS) that had distinct features. The offering of US$875 million was the first of its kind from India. The successful issuance reflected investor confidence in the country and the company. This case covers a full analysis of the CARS with a scope that spans valuation, structuring of the financing instrument to suit the issuer's strategic imperatives and investment analysis.

Teaching Note: 8B08N01 (12 pages)
Industry: Manufacturing
Issues: Conversion Option; Differential Shares; Depositary Receipts; Convertible Bonds
Difficulty: 4 - Undergraduate/MBA



ADVANCED MATERIAL TECHNOLOGY CORPORATION, LIMITED
Stephen R. Foerster, Akitoshi Ito

Product Number: 9A97N008
Publication Date: 6/2/1997
Revision Date: 2/5/2010
Length: 22 pages

Advanced Material Technology (AMT), a Japan-based company and one of the world’s largest manufacturers of advanced ceramic products, was considering the prospect of raising 24 billion yen ($200 million) to finance its planned capital expenditure program. AMT must consider a variety of financing sources including straight debt, convertible bonds, and bonds with warrants. Currency denomination and location of a global offering are also considered. The case also examines the economic and banking environment in Japan.

Teaching Note: 8A97N08 (8 pages)
Industry: Manufacturing
Issues: Capital Investment; International Finance; Financing; Financial Strategy; Japan
Difficulty: 4 - Undergraduate/MBA


Chapter 25:
Derivatives and Hedging Risk

AIR CANADA - RISK MANAGEMENT
David Wood, Craig Dunbar

Product Number: 9B10N037
Publication Date: 12/13/2010
Length: 11 pages

The chief executive officer (CEO) of Air Canada was reviewing the company's risk management program with the intent to suggest changes to the policy. Risk management was a topic all corporate boards were dedicating time to since the financial collapse of 2008, and boards had come to realize that hard questions needed to be asked about the source of risk, how it was disclosed, how it was to be accounted for and how it was managed. The CEO knew that he needed to consider the impact of his view of the economy, interest rates, exchange rates and the commodity markets on how aggressive Air Canada should be with its appropriate hedges. He decided to start by identifying the most relevant sources of external risk that could materially affect Air Canada's short and long-term financial performance. He then wanted to understand how these risks were managed today and how they compared to West Jet, their main competitor. Finally, he wanted to determine what changes should be made to either eliminate the source of risk or better manage any significant risks that remained.

Teaching Note: 8B10N037 (16 pages)
Industry: Transportation and Warehousing
Issues: Operations Management; Corporate Strategy; Risk Exposure; Hedging Risk; Risk Management; Defining Financial Risk
Difficulty: 4 - Undergraduate/MBA



LEVERAGED BUYOUT (LBO) OF BCE INC.: HEDGING CURRENCY RISK
Colette Southam, Ahsen Amir-Ali, Samir Meghji

Product Number: 9B08N023
Publication Date: 1/20/2009
Length: 7 pages

In 2007, an analyst in the derivatives group of investment bank Grenfeld & Co. was asked to devise a hedging strategy for Providence Equity Partners (Providence) in Bell Canada Enterprises (BCE Inc.). Providence was based in the United States and any strategy would involve significant foreign exchange rate risk due to the conversion of returns into U.S. dollars. The analyst needed to consider several long-term hedging strategies that Grenfeld & Co. could recommend to Providence. Her vice-president had asked that she create a hedging strategy by initially assuming a 25 per cent IRR for the investment and its performance, based on two outcomes at the end of the investment (investment horizon = five years): a zero per cent IRR and a 25 per cent IRR.

Teaching Note: 8B08N23 (5 pages)
Industry: Information, Media & Telecommunications
Issues: Options; Hedging; Derivatives
Difficulty: 4 - Undergraduate/MBA



AMARANTH ADVISORS: BURNING SIX BILLION IN THIRTY DAYS
Walid Busaba, Zeigham Khokher, Anuroop Duggal

Product Number: 9B08N003
Publication Date: 6/30/2008
Length: 15 pages

This case provides students with a deeper understanding of commodity futures markets in general and natural gas markets in particular. It also provides an introduction to hedge funds and insight into the largest hedge fund collapse in history. Third, it introduces such concepts as liquidity risk, value-at-risk, spread trades and the use of derivatives. As of the case date, Amaranth had not publicly disclosed the positions that led to $6 billion in losses during the month of September 2006. The case was written using public information and provides key pieces of data to allow students to reverse engineer possible positions Amaranth may have held.

Teaching Note: 8B08N03 (11 pages)
Industry: Utilities
Issues: Futures Markets; Risk Management; Hedge Funds; Energy Trading
Difficulty: 4 - Undergraduate/MBA


Chapter 26:
Short-Term Finance and Plannig

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 27:
Cash Management

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


Chapter 28:
Credit and Inventory Management

C. R. PLASTICS
David Wood, Mary Gillett

Product Number: 9B11D016
Publication Date: 1/3/2012
Revision Date: 10/13/2015
Length: 10 pages

Jamie Bailey, owner and president of C. R. Plastics, had successfully grown his business every year since 1994 when he began producing recycled plastic outdoor furniture. This rapid growth had provided its own challenges in terms of constrained financing and by summer 2010, Bailey was desperate for a new source of cash. He subsequently auditioned to be on Dragon’s Den, a television show where entrepreneurs could pitch their business to a group of venture capitalists, who could then choose to invest their own cash in exchange for a share of the business. With a week remaining before he had to present his final pitch, Bailey had to make a difficult prediction: How much money would he need to meet the growing demand into 2011? Complicating his analysis were competing proposals to fundamentally change how production was managed. In addition to reconfiguring labour allocation, one method required significant investment in equipment, while the other increased inventory during the off-season. Which alternative would allow the company to retain a greater share of the equity when Bailey pitched his business to the Dragon’s Den panel?

Teaching Note: 8B11D016 (8 pages)
Industry: Manufacturing
Issues: Cash Flow Projections; Financing; Valuation; Seasonal Working Capital Management; Furniture; Canada
Difficulty: 4 - Undergraduate/MBA



WARNER-LAMBERT CANADA INC.
David C. Shaw, John Harris

Product Number: 9A85B026
Publication Date: 1/1/1985
Revision Date: 11/5/2003
Length: 12 pages

The case describes the problem facing the president and credit manager of Warner-Lambert with respect to financial position of a major distributor. The distributor's financial statements have just been received by the company and the situation is much worse than anticipated. The survival of the distributor is clearly threatened and Warner-Lambert must consider a new distribution network for the territory.

Teaching Note: 8A85B26 (6 pages)
Industry: Manufacturing
Issues: Sales Organization; Credit
Difficulty: 4 - Undergraduate/MBA


Chapter 29:
Mergers, Acquisitions, and Divestitures

THE MAPLE ACQUISITION OF THE TMX GROUP INC.
Michael R. King, Amir Barnea, Feroz Qayyum

Product Number: 9B13N023
Publication Date: 11/1/2013
Revision Date: 7/22/2014
Length: 16 pages

In mid-March 2011, the vice-chairman of National Bank Financial had to decide what price to recommend to his Maple consortium partners for the TMX Group Inc. (TMX). The TMX was the owner and operator of Canada’s leading cash and derivatives exchanges. The vice-chairman was leading a consortium of Canadian banks that was planning an unsolicited bid in response to merger talks between the TMX and the London Stock Exchange Group. The case allows for a discussion of mergers and acquisitions and the factors behind merger waves, the mechanics of a hostile bid for a publicly listed company, the changing landscape for stock and derivative exchanges, the valuation of a target company, and the distinction between strategic and financial buyers. An Excel spreadsheet for students is available.

Teaching Note: 8B13N023 (15 pages)
Industry: Finance and Insurance
Issues: Merger; acquisition; takeover; exchange; valuation; Canada
Difficulty: 4 - Undergraduate/MBA



LISCO ACQUISITION OF A MINORITY INTEREST OF ORION
Richard Howard, Kimberley Howard

Product Number: 9B13N008
Publication Date: 6/12/2013
Revision Date: 7/27/2017
Length: 11 pages

A wealth management company in Chile that provided financial advisory services to high net worth individuals and pension funds was at a crossroads. After 15 years in business, the company had become very successful. To increase its value without incurring undue corporate financial risk, the owner, who has invested most of his personal wealth in the company, has the opportunity to make an investment in a similar wealth management company in Colombia. What are the risks and rewards of such a complex international merger and acquisition for this medium-sized enterprise operating in an uncertain political and economic environment?

Teaching Note: 8B13N008 (13 pages)
Industry: Finance and Insurance
Issues: Company valuation; minority acquisitions; Chile; Colombia
Difficulty: 4 - Undergraduate/MBA



PROPOSED MERGER OF PERDIGÃO AND SADIA
James E. Hatch, Deborah Terayama

Product Number: 9B12N005
Publication Date: 4/19/2012
Revision Date: 4/23/2012
Length: 20 pages

In April 2009, Perdigão was contemplating the acquisition of Sadia and a merger of the two companies. The intended share-swap transaction between two of Brazil’s biggest food companies would allow Perdigão to dramatically grow its domestic and international market share, and become one of the world’s largest players in the food production industry, while driving up profit margins by benefiting from synergies. However, Sadia had very significant short and long debt that it was unlikely to be able to service. Students must determine whether Perdigão should acquire Sadia and the basis of the proposed share exchange, and assess whether the resulting debt burden of the combined companies is manageable.

Teaching Note: 8B12N005 (15 pages)
Industry: Retail Trade
Issues: Mergers and Acquisitions; Discounted Cash Flow; Risk; Weighted Average Cost of Capital; Food Production; Brazil
Difficulty: 4 - Undergraduate/MBA


Chapter 30:
Financial Distress

IFCI: THE FALL AND THE NEED FOR REVIVAL
Shailendra Kumar Rai, C.P. Gupta, S. Ravi

Product Number: 9B13N026
Publication Date: 12/19/2013
Revision Date: 12/18/2013
Length: 22 pages

After independence in 1947, the government of India founded the Industrial Finance Corporation of India as the first development financial institution to provide medium- and long-term loans to public limited companies and cooperative societies engaged in productive activities. Then in 1991, the government’s New Economic Policy opened the door to liberalization, privatization and globalization of the Indian economy. The company was restructured and incorporated in 1993 but was unable to diversify its business model from project financing to other financial services. By 2004, it had almost collapsed; its profitability had become negative. Non-performing assets had reached their peak, and the company did not have money to do business. It began selling off and/or renting out its premises, going door-to-door to save its future, and employee morale hit rock bottom. The business had become unsustainable and unviable. With this as backdrop, the board of directors needs to decide on the company’s future. What is their best option: liquidation, restructuring, merger or strategic partnership?

Teaching Note: 8B13N026 (19 pages)
Industry: Finance and Insurance
Issues: Accounting; restructuring; financial institutions; India
Difficulty: 5 - MBA/Postgraduate



STATE FAIR OF VIRGINIA
W. Glenn Rowe, Karin Schnarr

Product Number: 9B12M050
Publication Date: 4/25/2012
Revision Date: 6/28/2012
Length: 20 pages

In November 2011, the State Fair of Virginia, Inc. (SFVA), which had been operating since 1854, was facing a dire financial situation. SFVA was a privately held, not-for-profit organization that operated the state fair independent of the state government, and received no operating support from state or local governments. In 2003, the organization had borrowed $83 million against a $47 million investment portfolio in order to develop its new fairgrounds, which opened in 2009. The new site had been attractive because it included The Meadow Farm, a horse farm famous for being the birthplace of the Secretariat, winner of the 1973 Triple Crown. The unprecedented collapse of the financial markets in the United States in 2008, combined with a poor economy and terrible weather for the fair’s first two years, resulted in a situation where in late 2011 the organization did not bring in enough income and donations to cover the loan payments. Creditors were demanding an immediate solution. The board of directors of SFVA realized that it had no choice but to consider strategic options including applying for Chapter 11 bankruptcy, which would give it time to try to restructure its debt, or shutting down immediately.

Teaching Note: 8B12M050 (11 pages)
Industry: Arts, Entertainment, Sports and Recreation
Issues: Bankruptcy; Non-profit Organizations; Operations; Strategy Formulation; Risk Analysis; Strategy Execution; United States
Difficulty: 4 - Undergraduate/MBA



RING-A-WING (A)
David Simpson, Colin McDougall

Product Number: 9B11N001
Publication Date: 2/3/2011
Length: 5 pages

Late in August 2004, Chris Higgins was forced into the unenviable position of determining the future of Ring-A-Wing, a London, Ontario-based fast food producer of premium chicken wings for home delivery. After making a personal loan to a friend wishing to invest in the business, the situation devolved in less than nine months from Higgins being a passive lender to being a significant investor to sitting in a bankruptcy meeting trying to determine the future of the business. The issue in the (A) case is whether the Higgins group should reopen Ring-A-Wing.

Teaching Note: 8B11N001 (4 pages)
Industry: Accommodation & Food Services
Issues: Personal Loan; Reopen; Bankruptcy; Food Delivery; Small Business
Difficulty: 4 - Undergraduate/MBA


Chapter 31:
International Corporate Finance

WILEY INTERNATIONAL
Robert Higgins, Paul M. Bishop, Stephen Sapp

Product Number: 9B06N001
Publication Date: 11/28/2005
Revision Date: 7/5/2011
Length: 7 pages

The vice-president of a U.S.-based multi-national company must reach a decision regarding a $13 million capital expenditure proposal from the firm's Brazilian division. The proposal is of particular interest because it is considered to be a testcase in the development of a process to evaluate foreign currency-based investment proposals company wide. The vice-president's objective is to establish a process which will measure the relative economic attractiveness of investment proposals worldwide, regardless of the currencies in which these proposals are initially assessed.

Teaching Note: 8B06N01 (9 pages)
Industry: Manufacturing
Issues: Management in a Global Environment; Foreign Exchange; Capital Budgeting
Difficulty: 4 - Undergraduate/MBA



MASKWA RESOURCES: FINANCING WITH A EURO BOND
Stephen Sapp, Ken Mark

Product Number: 9B05N023
Publication Date: 6/30/2008
Revision Date: 10/4/2009
Length: 8 pages

The president of a small mining company is faced with an opportunity to purchase a mining refinery to complement its existing mining operations. It has the potential to bring the company into a situation of positive cashflow, but the small size of the company and high risk of the mining industry has left the president with few alternatives to raise the capital. The case focuses on the issuing of a Euro-denominated bond to finance this purchase and provide funds for future acquisitions. The case discusses the alternatives available in such a situation as well as the risks associated with changes in the price of metals and the value of the U.S. dollar, Canadian dollar and the Euro on the ability to make regular payments on the Euro-denominated bond and other financing alternatives.

Teaching Note: 8B05N23 (10 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Capital Markets; Risk Management; Hedging; Foreign Exchange; Financial Strategy
Difficulty: 5 - MBA/Postgraduate



WRIGHT-ANDERSON MACHINES
Paul M. Bishop, Richard Nason

Product Number: 9A90B007
Publication Date: 1/1/1990
Revision Date: 1/31/2002
Length: 2 pages

The vice-president finance for a Canadian manufacturer has to decide how best to refinance a Swiss franc loan that is about to mature. The case involves consideration of interest rate risk and foreign exchange risk. The case is designed to introduce students to borrowing in international markets. It gives students an idea of the many opportunities to borrow internationally. By examining the cost of the previous loan, students should gain an appreciation of how changes in exchange rates can affect the cost of a loan.

Teaching Note: 8A90B07 (4 pages)
Industry: Manufacturing
Issues: Foreign Exchange; Financing; International Finance; Hedging
Difficulty: 4 - Undergraduate/MBA