Ivey Publishing

Principles of Corporate Finance

Brealey, R.; Myers, S.; Allen, F.,11/e (United States, McGraw-Hill Irwin, 2014)
Prepared By Athena Ngai, CaseMate Editor
Chapter and Title Chapter Matches: Case Information
Chapter 1:
Introduction to Corporate Finance

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



BCE INC.: BONDHOLDERS VERSUS SHAREHOLDERS SUPREME COURT SHOWDOWN?
Stephen R. Foerster, David Kunsch

Product Number: 9B09N027
Publication Date: 10/30/2009
Revision Date: 11/10/2011
Length: 5 pages

In May 2008, the board of directors of BCE Inc., one of Canada’s leading integrated communications companies, was dealing with the fallout of a Quebec Court of Appeal decision. The court had ruled to disallow a $50 billion privatization deal as, according to the court, the process was flawed and did not consider the debenture (bond) holders of Bell Canada (a wholly owned subsidiary of BCE). The court had ruled that the board had allowed a deal in which benefits accrued only to the shareholders (a 40 per cent increase in value since the firm was in play) at the expense of the bondholders, who were dealt an 18 per cent decrease in value over the same period. In deciding whether or not to launch a last-ditch appeal to the Supreme Court of Canada, management and the board needed to determine who were the key stakeholders involved in the decision to take the firm private, what their interests were, and how those interests should guide the board.

Teaching Note: 8B09N27 (6 pages)
Issues: Stakeholder Analysis; Legal System; Leveraged Buyout; Valuation; Corporate Strategy; Bonds
Difficulty: 4 - Undergraduate/MBA



CEQUEL ENERGY, INC.: INCREASING SHAREHOLDER VALUE
Craig Dunbar, Ken Mark

Product Number: 9B08N011
Publication Date: 6/22/2010
Length: 14 pages

The chief executive (CEO) of Cequel Energy, Inc. (Cequel) is trying to choose between three options: continue operating Cequel as is, selling it, or converting part of the company into an income trust (in combination with another similarly sized firm). The CEO's key concern is the relative valuation of the three options. Other key issues include the management team's preferences and an impending tax horizon. This case can be used as an introduction to corporate finance and valuation using multiples. It also allows for consideration of the impact of taxes on valuation and could provide a useful tool to discuss tax policy given changes in the tax treatment of income trusts that occurred subsequent to the case.

Teaching Note: 8B08N011 (16 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Mergers & Acquisitions; Financial Analysis; Corporate Structure; Valuation
Difficulty: 4 - Undergraduate/MBA


Chapter 2:
How to Calculate Present Values

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



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



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 3:
Valuing Bonds

EMIRATES AIRLINE: A BILLION-DOLLAR SUKUK-BOND ISSUE
Emir Hrnjić, Harun Kapetanović, David Reeb

Product Number: 9B14N002
Publication Date: 4/8/2014
Revision Date: 4/4/2014
Length: 19 pages

Emirates Airline (EA) needs to fund the purchase of 30 new A380 aircraft. On March 11, 2013, EA announced plans to issue US$1 billion of Islamic bonds (sukuk) and $750 million of regular bonds. These bonds arguably share similar risks and seniority even though the sukuk bonds sold with a lower implied yield. This difference in pricing for securities with similar default risks seems at odds with conventional finance thinking. Against this backdrop, the EA treasury department must decide on the appropriate funding for this next batch of A380 airplanes.

Teaching Note: 8B14N002 (8 pages)
Industry: Transportation and Warehousing
Issues: Financial securities; bonds; financial innovation; Islamic finance; Dubai; United Arab Emirates; Asia
Difficulty: 4 - Undergraduate/MBA



EAST CAMERON PARTNERS: THE SUKUK BOND
Stephen Sapp, Brooke Harley

Product Number: 9B10N014
Publication Date: 8/19/2010
Length: 9 pages

The chief executive officer (CEO) of East Cameron Partners LP, is interested in raising capital to buy out his existing 50 per cent partner thereby regaining control of the firm and enabling him to finance new growth. Because of the risky nature of the oil and gas business and relatively small size of East Cameron, the CEO has limited alternatives available to him. The case discusses the standard alternatives available to small and medium sized enterprises to raise capital but it also provides particular focus on a new alternative, a Sukuk Bond.

Teaching Note: 8B10N14 (10 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Islamic Finance; Financial Instruments; Capital Markets; International Finance; Financial Strategy
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 4:
The Value of Common Stocks

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 5:
Net Present Value and Other Investment Criteria

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 Investment Decisions with the Net Present Value Rule

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


Chapter 7:
Introduction to Risk and Return

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 8:
Portfolio Theory and the Capital Asset Pricing Model

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



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 COCA COLA STOCK
Stephen R. Foerster, Bruce Chin

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

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

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


Chapter 9:
Risk and the Cost of Capital

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

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

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

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



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

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

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

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



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 10:
Project Analysis

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



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

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

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

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


Chapter 11:
Investment, Strategy, and Economic Rents
Chapter 12:
Agency Problems, Compensation, and Performance Measurement

VALJIBHAI STONES
Debashis Sanyal, Smita Mazumdar

Product Number: 9B14N009
Publication Date: 4/17/2014
Revision Date: 4/17/2014
Length: 11 pages

Valjibhai Stones, a supplier of quality stone chips in India, has been approached by a multinational company that needs a reliable supplier of quality stone chips for the next eight years. Accepting the order would require a capacity expansion to produce high-quality aggregate solely for the multinational company and at the cost of foregoing all of its existing business. If the offer is accepted, the company would earn substantial revenue for eight years, but would then need to seek fresh business in a highly competitive market.

Teaching Note: 8B14N009 (14 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Strategic cost management; cost of capital; investment decision; return on investment; economic value added; India
Difficulty: 5 - MBA/Postgraduate



THE DELHI LAND AND FINANCE IPO: TO BE OR NOT TO BE?
Nandita Yadav, Pratap Chandra Biswal

Product Number: 9B12N023
Publication Date: 10/15/2012
Revision Date: 4/29/2013
Length: 18 pages

DLF was the largest real estate player in India, possessing a strong home market in Delhi and Gurgaon (the National Capital Region, NCR). The Indian real estate market was growing rapidly, and DLF wanted to convert this growth opportunity into a country-wide presence by building significant land reserves. With huge debt on its balance sheet, the company decided to raise finance through equity. The stock markets were on a rise, and the timing was perfect to raise funds from an initial public offering (IPO). The company filed its draft red herring prospectus (DHRP) in May 2006, but soon afterwards the stock market scenario changed, and the company faced complaints from its minority shareholders. The global macroeconomic scenario had become a cause of concern too. DLF was forced to withdraw its DRHP and put its IPO plans on hold. This case is positioned in January 2007, when DLF had resolved its minority shareholders’ issue and had added significant portions to its land reserves. At that juncture, DLF’s management began the process of trying to gauge the circumstances before reintroducing its decision to go public.

Teaching Note: 8B12N023 (17 pages)
Industry: Real Estate and Rental and Leasing
Issues: Initial public offering; financial valuation; Indian economy; global macroeconomy; India
Difficulty: 5 - MBA/Postgraduate



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

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

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

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


Chapter 13:
Efficient Markets and Behavioral Finance

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 14:
An Overview of Corporate Financing

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



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



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 15:
How Corporations Issue Securities

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



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

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

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

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



CASH TECHNOLOGY LIMITED: A CHINESE IPO IN SINGAPORE
Larry Wynant, Nigel Goodwin

Product Number: 9B06N006
Publication Date: 1/13/2006
Revision Date: 8/2/2011
Length: 19 pages

Cash Technology Limited is a Xiamen-based manufacturer of self-service banking machines, touchscreens and related software. The company was set to issue its initial public offering on the Singapore Exchange. The proceeds from the IPO would help the mid-sized, entrepreneurial and private company secure its position in the burgeoning Chinese market for automated teller machines and related equipment. With six weeks left before the IPO, the chief executive officer and chief financial officer attempted to value their company by various methods and assess the reasonableness of the offering price proposed by the IPO manager. The case challenges students to examine the attractiveness and value of a business from the perspective of the issuer and potential investors, and can also provide the opportunity for students to develop a strategy for communicating with institutional investors.

Teaching Note: 8B06N06 (19 pages)
Industry: Manufacturing
Issues: China; Financial Analysis; Initial Public Offerings; Cost of Capital; Valuation; Nanyang
Difficulty: 4 - Undergraduate/MBA


Chapter 16:
Payout Policy

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



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 17:
Does Debt Policy Matter?

CONSUMERS' GAS COMPANY LTD.
Robert W. White

Product Number: 9A95B004
Publication Date: 11/14/1995
Revision Date: 2/11/2010
Length: 23 pages

The setting for the case is a rate hearing to determine the cost of capital for a gas utility. The case provides an opportunity for a full discussion of the issues in estimating the cost of capital for both regulated and unregulated firms. The situation has an added twist in that the company just became a wholly owned subsidiary of British Gas.

Teaching Note: 8A95B04 (18 pages)
Industry: Utilities
Issues: Leverage; Cost of Capital; Financial Strategy
Difficulty: 4 - Undergraduate/MBA



TREMBLAY LTEE.
Larry Wynant, Steven Cox

Product Number: 9A89B007
Publication Date: 1/1/1989
Revision Date: 2/17/2011
Length: 27 pages

An account manager of a large bank is reviewing a request for term financing to assist with the repurchase of a minority interest in a large trucking company. The firm is considering a term loan as well as an investment by the venture capital arm of the bank. An equity investment would require agreement on the form of the investment and the price to be paid for any stock issued.

Teaching Note: 8A89B07 (10 pages)
Industry: Transportation and Warehousing
Issues: Venture Capital; Debt Policy; Equity Financing
Difficulty: 4 - Undergraduate/MBA


Chapter 18:
How Much Should a Corporation Borrow?

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



MINNOVA INC. - LAC SHORTT MINE
Claude P. Lanfranconi, Rhonda L. English

Product Number: 9A90B002
Publication Date: 1/1/1990
Revision Date: 4/23/1999
Length: 11 pages

Minnova Lac Shortt mine faces an important capital budgeting decision. A discounted cashflow analysis of a $19 million investment to deepen the existing mine by 300 metres is required. Given the high levels of uncertainty and flux in the external environment (e.g., U.S. exchange rate, price of gold, head grade of ore, recovery percentage, etc), managers need to conduct a sensitivity analysis. Qualitatively, Minnova's mining strategy weighs heavily on the decision because the quantitative analysis results in a slightly negative net present value.

Teaching Note: 8A90B02 (9 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Capital Budgeting; Sensitivity Analysis; Investment Analysis
Difficulty: 4 - Undergraduate/MBA


Chapter 19:
Financing and Valuation

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



OXFORD LEARNING CENTRES INC.: THE CHILDTIME ALTERNATIVE
Craig Dunbar

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

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

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



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

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

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

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


Chapter 20:
Understanding Options

COWEST ENERGY
Robert W. White, Jim Fisher

Product Number: 9A96B019
Publication Date: 5/14/1996
Revision Date: 2/5/2010
Length: 13 pages

The deregulation of the natural gas industry permitted the creation of new companies, gas marketers or gas banks, such as CoWest. Still in its first year of operations, CoWest had the opportunity to bid on a fixed-price long-term contract to supply gas to a cogeneration plant. The focus of the case is to investigate the possibilities of putting a deal together using financial derivatives.

Teaching Note: 8A96B19 (27 pages)
Industry: Utilities
Issues: Risk Management; Derivatives; Bidding
Difficulty: 4 - Undergraduate/MBA



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 21:
Valuing Options

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 22:
Real Options

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 23:
Credit Risk and the Value of Corporate Debt

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



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



ONTARIO TEACHERS' PENSION PLAN BOARD: VALUE AT RISK
Stephen R. Foerster, Dean Tzembelicos

Product Number: 9A96B056
Publication Date: 10/24/1996
Revision Date: 2/9/2010
Length: 16 pages

The Ontario Teachers' Pension Plan Board, Canada's largest pension fund with over $40 billion in assets, had just listened to a presentation addressing a method for identifying and controlling the pension fund's exposure to market risks known as Value At Risk. The Board needed to understand what Value At Risk represented, what assumptions went into the risk management systems and how it might impact on policy decisions. This case introduces students to the risk management of investment portfolios, highlighting benefits and limitations.

Teaching Note: 8A96B56 (12 pages)
Industry: Finance and Insurance
Issues: Risk Management; Risk Analysis; Pensions; Investments
Difficulty: 4 - Undergraduate/MBA


Chapter 24:
The Many Different Kinds of Debt

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

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

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

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



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


Chapter 25:
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 26:
Managing 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



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

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

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

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


Chapter 27:
Managing International Risks

ALUMNI ACTION FOUNDATION: CURRENCY HEDGING STRATEGY
Walid Busaba, Zeigham Khokher, Ken Mark

Product Number: 9B10N030
Publication Date: 12/13/2010
Length: 14 pages

The executive director of an independent charitable foundation is thinking about whether to hedge his foundation's U.S. dollar exposure given the large swings in the Canadian dollar-U.S. dollar exchange rate. For the past four years, the weakening U.S. dollar has contributed to underperformance in the foundation's portfolio relative to its peers.

Teaching Note: 8B10N030 (7 pages)
Industry: Administrative, Support, Waste Management and Remediation Services
Issues: Investments; Investor Relations; Investment Analysis; Hedging
Difficulty: 5 - MBA/Postgraduate



CADIM: THE CHINA AND INDIA REAL ESTATE MARKET ENTRY DECISIONS
Stephen R. Foerster, Marc Folch

Product Number: 9B09N003
Publication Date: 1/30/2009
Revision Date: 7/6/2009
Length: 17 pages

The president and chief operating officer of Cadim, the real estate arm of the Caisse de Dépôt et Placement du Québec, Canada's largest pension fund management firm, was considering whether Cadim should enter India, China or both on a long-term basis to diversify its global real estate holdings and take advantage of the growth these two countries were experiencing. The fund's investment would potentially amount to hundreds of millions of dollars and could lead to substantial returns; however, these investments carried considerable risks. The case introduces many of the issues involved with managing an international portfolio of real estate and provides a detailed overview of the business environment and culture of both China and India. In doing so, the case exposes students to the complicated nature of regional risk assessment and the challenges of doing business in developing countries. Students must assess whether the complexity and risk levels involved with entering a new developing country are worth the potential returns.

Teaching Note: 8B09N03 (9 pages)
Industry: Real Estate and Rental and Leasing
Issues: China; International Strategy; International Joint Venture; Investments
Difficulty: 4 - Undergraduate/MBA



VOYAGES SOLEIL: THE HEDGING DECISION
Stephen Sapp

Product Number: 9B05N024
Publication Date: 11/28/2005
Revision Date: 11/4/2009
Length: 8 pages

The president of a small Canadian tour operator of packaged vacations faces foreign exchange risk resulting from a future transaction in which the firm is committing to pay in U.S. dollars where the company's revenues are in Canadian dollars. The thin profit margins require the company to consider different hedging alternatives. The case provides significant information that will allow students to discuss international parity conditions and various hedging strategies within a relatively simple context.

Teaching Note: 8B05N24 (6 pages)
Industry: Arts, Entertainment, Sports and Recreation
Issues: Derivatives; Strategic Planning; Hedging; Risk Management
Difficulty: 4 - Undergraduate/MBA


Chapter 28:
Financial Analysis

SELECTING A PHARMACEUTICAL COMPANY FROM NORTHEAST ASIA FOR INVESTMENT
Ho-Young Lee, James Russell Shaw Jr., Moon-Kyung Cho

Product Number: 9B12B024
Publication Date: 9/17/2012
Revision Date: 5/12/2014
Length: 8 pages

Joe Clift, a co-founder and managing partner of private equity firm Blacksmith Partners LLC in New York, managed his company's emerging market funds for several industries. He planned to add one company from Northeast Asia to generate growth in his pharmaceutical industry portfolio, and had focused on three outstanding pharmaceutical companies: Takeda Pharmaceutical Company Ltd. from Japan, Dong-A Pharmaceutical Company Ltd. from Korea, and Sinovac Biotech Company Ltd. from China. All three companies had shown strong growth in their respective markets over the years. Japan, the number-one pharmaceutical drug consumer in Asia, was also the second-largest individual market in the world, behind the United States. Japan generated sales of $60 billion, which constituted approximately 11 per cent of the global market in 2006. Korea maintained a competitive domestic market share supported by an excellent national health insurance system and high research power. Korea was the fourteenth-largest drug consumer in the global market as of 2008. China, being one of the fastest-growing pharmaceutical markets, was the second-largest pharmaceutical drug consumer in Asia. With an ever-growing population of senior citizens in Northeast Asia, the managing partner predicted strong potential growth in drugs for chronic diseases in these emerging markets. Which company should Clift choose among these three companies, and why?

Teaching Note: 8B12B024 (16 pages)
Industry: Manufacturing
Issues: Pharmaceutical Industry; Northeast Asia; Financial Statements; Stock Investment; Korea; China; Japan
Difficulty: 1 - Introductory



WESTJET AIRLINES LTD.: INVESTMENT STRATEGY
Larry Wynant, Ken Mark

Product Number: 9B09N023
Publication Date: 9/10/2009
Revision Date: 5/15/2013
Length: 15 pages

In August 2009, a portfolio manager for Resolute Funds Inc. is considering adding WestJet Airlines to his fund’s holdings. WestJet, a fast-growing airline based in Calgary, Alberta, has grown rapidly from a start-up to the second-largest airline in Canada. Despite its recent successes, its share price has halved from its high in December 2007, due to the economic crisis. The portfolio manager is trying to determine whether WestJet’s shares are attractive. To support his analysis, he has asked his team to assemble comparative financial data on WestJet and its key competitors. The portfolio manager wants to know if he should buy, hold, or sell WestJet’s shares.

Teaching Note: 8B09N23 (6 pages)
Industry: Transportation and Warehousing
Issues: Investments; Investment Analysis; Financial Analysis; Airline Industry
Difficulty: 4 - Undergraduate/MBA



FINANCIAL PERFORMANCE OF DELL COMPUTER
Craig Dunbar, Daniel Goldberg

Product Number: 9B01N017
Publication Date: 3/28/2002
Revision Date: 1/6/2010
Length: 14 pages

A financial analyst for Dell Computer Corporation, one of the world's largest computer systems manufacturers, has been asked by the treasurer to develop a report on the company's recent financial performance. Over the last few years, the company has realized it has lost approximately 50 per cent of its stock. Did this decline reflect industry and market wide effects or were there some emerging problems with Dell's operating performance? The financial analyst must analyse the company's financial statements and the cash flows of Dell and its competitors.

Teaching Note: 8B01N17 (11 pages)
Industry: Retail Trade
Issues: Computer Industry; Financial Analysis; Performance Measurement; Cash Flow
Difficulty: 4 - Undergraduate/MBA


Chapter 29:
Financial Planning

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

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

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

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



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

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

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

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



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

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

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

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


Chapter 30:
Working Capital Management

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

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

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

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



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

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

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

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

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


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


Chapter 31:
Mergers

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 32:
Corporate Restructuring

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



BAIN CAPITAL AND DOLLARAMA
Wayne Adlam, Ken Mark, Amanda Chan

Product Number: 9B12N002
Publication Date: 3/8/2012
Revision Date: 3/8/2012
Length: 15 pages

The senior associate at a large Canadian bank is tasked with analyzing a potential Bain Capital buyout of Dollarama. The bank is offering $600 million in deal financing to the acquirer, Bain Capital Private Equity. Her role is to analyze potential financing structures, model various operating scenarios assuming different strategic directions, and assess the ability of Dollarama to service its debt following the acquisition.

Teaching Note: 8B12N002 (9 pages)
Industry: Retail Trade
Issues: Leveraged Buyout; Private Equity; Financial Analysis; Financing; Takeover Bids; Canada
Difficulty: 4 - Undergraduate/MBA



BCE INC.: WORLD'S LARGEST LBO DEAL IN JEOPARDY
Stephen R. Foerster

Product Number: 9B09N029
Publication Date: 12/11/2009
Revision Date: 1/29/2010
Length: 4 pages

In November 2008, Bell Canada Enterprises Inc. (BCE) appeared to be on track to meet a December 2008 deadline to complete a $52-billion privatization deal. A consortium had previously submitted a winning leveraged buyout (LBO) bid that was estimated to add around $32 billion in debt to the company. Mere days before the deal’s termination date, BCE executives were stunned to hear that KPMG auditors advised that the deal was in jeopardy of collapse — based on a clause that normally merited little attention. The auditors noted that, on the basis of preliminary assessment, the company had not passed a required solvency test which compared the estimated value of BCE’s assets and liabilities in the event that BCE needed to liquidate. BCE executives had little time to determine if the deal could still be saved and, if so, how. Conversely, if the deal could not be completed, what would the organization’s next steps be?

Teaching Note: 8B09N29 (8 pages)
Issues: Dividend Policy; Leveraged Buyout; Deal Structuring; Stock Market; Audit
Difficulty: 4 - Undergraduate/MBA


Chapter 33:
Governance and Corporate Control Around the World

THE CANADA PENSION PLAN INVESTMENT BOARD: GOVERNANCE
Zeigham Khokher, Walid Busaba, Ken Mark

Product Number: 9B10N009
Publication Date: 4/19/2010
Length: 11 pages

The Canada Pension Plan Investment Board (CPPIB) has put in place a strong governance structure to ensure that excess contributions (by Canadians) can be invested with a singular mandate - to maximize the rate of return without undue risk of loss. In September 2009, a private member's bill seeks to regulate Canadian government agencies' dealings with Canadian mining companies operating in developing countries. A senior manager at the CPPIB has been asked to help craft the CPPIB's response to the bill.

Industry: Public Administration
Issues: Risk Management; Investment Analysis; Government and Business; Government Regulation
Difficulty: 4 - Undergraduate/MBA



CANADA'S RESPONSE TO SARBANES-OXLEY
Vaughan S. Radcliffe, Brooke Harley

Product Number: 9B09M038
Publication Date: 6/10/2009
Revision Date: 7/29/2009
Length: 7 pages

The case reviews responses by governments, securities commissions and others to the U.S. Sarbanes-Oxley Act. It discusses the certification of financial statements and internal controls, the role of boards and board committees, including the audit committee, and issues of auditor independence. The Canadian Public Accountability Board is also discussed.

Teaching Note: 8B09M38 (3 pages)
Industry: Finance and Insurance
Issues: Auditing; Legal Requirement; Financial Regulation; Board and Management Duties
Difficulty: 4 - Undergraduate/MBA



CORPORATE GOVERNANCE STANDARDS: QATAR TELECOM ACQUIRES WATANIYA TELECOM
Assem Safieddine, Zeigham Khokher, Ken Mark

Product Number: 9B09M048
Publication Date: 11/9/2009
Length: 11 pages

This case focuses on the issue of corporate governance in the Middle East. A senior official at the Kuwait Stock Exchange (KSE) is looking at a recent transaction in which Qatar Telecom (Qtel) acquired National Mobile Telecommunications Company KSC (Wataniya). The KSE official wondered whether, at the company level, inadequate corporate governance measures had allowed this alleged unequal treatment to pass unchallenged. More importantly, at the exchange level, the KSE official wondered what actions - if any - could have been taken to enhance the rights of minority shareholders.

Teaching Note: 8B09M48 (8 pages)
Industry: Administrative, Support, Waste Management and Remediation Services
Issues: Government Regulation; Stakeholder Analysis; Government and Business
Difficulty: 4 - Undergraduate/MBA


Chapter 34:
Conclusion: What We Do and Do Not Know about Finance

POLARIS LIFE INSURANCE COMPANY: CORPORATE GOVERNANCE
Lawrie Savage, Norma Nielson

Product Number: 9B14N010
Publication Date: 3/27/2014
Revision Date: 3/26/2014
Length: 14 pages

The recently appointed commissioner of insurance for Arlandia, an emerging-market country, is determined to do everything possible to minimize insolvencies and their potential destabilizing effects on the country’s financial system. The commissioner has an urgent need to quickly get up to speed on the Polaris Life Insurance situation. The minister of finance has already fielded inquiries regarding the company’s soundness, and the Arlandia Insurance Authority’s on-site inspectors have expressed deep concern about the company’s investment portfolio. The commissioner now needs to brief the minister of finance about the situation, develop plans for how the insurance authority should proceed and consider recommending additional regulatory changes.

Teaching Note: 8B14N010 (13 pages)
Industry: Finance and Insurance
Issues: Governance; regulation; financial institutions; supervision
Difficulty: 4 - Undergraduate/MBA



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



CANADA'S RESPONSE TO SARBANES-OXLEY
Vaughan S. Radcliffe, Brooke Harley

Product Number: 9B09M038
Publication Date: 6/10/2009
Revision Date: 7/29/2009
Length: 7 pages

The case reviews responses by governments, securities commissions and others to the U.S. Sarbanes-Oxley Act. It discusses the certification of financial statements and internal controls, the role of boards and board committees, including the audit committee, and issues of auditor independence. The Canadian Public Accountability Board is also discussed.

Teaching Note: 8B09M38 (3 pages)
Industry: Finance and Insurance
Issues: Auditing; Legal Requirement; Financial Regulation; Board and Management Duties
Difficulty: 4 - Undergraduate/MBA