Ivey Publishing

International Financial Management

Eun, C.S., Resnick, B.G.,7/e (United States, McGraw-Hill, 2015)
Prepared By Eunika Sot,
Chapter and Title Chapter Matches: Case Information
Chapter 1:
Globalization and the Multinational Firm

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



GREAT RECESSION, 2007-2010: CAUSES AND CONSEQUENCES
David W. Conklin, Danielle Cadieux

Product Number: 9B10M008
Publication Date: 1/20/2010
Length: 11 pages

A recession in the U.S. economy began at the end of 2007. Concerns deepened as an epic financial crisis shattered business and consumer confidence. By the fall of 2008, the United States was in the midst of the worst recession since the 1930s, and major financial institutions were on the verge of bankruptcy. The financial crisis and recession spread around the world. Many saw a risk that the global financial system might collapse, perhaps precipitating a repetition of the lengthy economic devastation of the 1930s depression. Governments reacted by creating huge stimulus packages that greatly increased national deficits and debts, and by loosening monetary policies with interest rates close to zero and huge expansions of the money supply. In their efforts to save the financial system, governments also offered bail-out packages to banks, including loans, guarantees and equity. By the fall of 2009, the crisis had stabilized, and the appearance of green shoots gave promise of recovery. By 2010, it was possible to put the financial crisis in perspective, and to raise questions about the causes and consequences. Of particular concern was whether new regulations might be needed to prevent a recurrence, and whether some of the tighter regulations should be international in scope. A related concern was whether such regulations should be applied to non-bank financial institutions as well as banks. Governments were also trying to determine how to exit the unique fiscal and monetary positions that now seemed to put their economies at risk of ongoing deficits and future inflation.

Teaching Note: 8B10M08 (5 pages)
Industry: Finance and Insurance
Issues: Business and Society; Government and Business; Government Regulation; Financial Institutions
Difficulty: 4 - Undergraduate/MBA



FIRSTCARIBBEAN: THE PROPOSED MERGER
Stephen Sapp

Product Number: 9B06N004
Publication Date: 11/28/2005
Revision Date: 9/23/2009
Length: 18 pages

This case provides students with an abridged version of the Offering Circular provided to investors for the proposed merger of the Caribbean operations of two international banks. Taking the perspective of an investment advisor, students are asked to evaluate the proposed merger and make a recommendation to the existing shareholders regarding how they should manage this investment going forward (i.e. sell or hold the shares in the new company). Students will discuss several of the issues involved in valuing international companies using somewhat limited data and puts them in the position of assessing the value of the proposal to existing shareholders.

Teaching Note: 8B06N04 (6 pages)
Industry: Finance and Insurance
Issues: Valuation; Mergers & Acquisitions; Investment Analysis; International Business
Difficulty: 4 - Undergraduate/MBA


Chapter 2:
International Monetary System

ALLIANCE DESIGN CONCEPTS: FOREIGN EXCHANGE RISK
Ryan Orchard

Product Number: 9B14M116
Publication Date: 10/3/2014
Revision Date: 7/27/2017
Length: 9 pages

Alliance Design Concepts provided audio system solutions, which involved installing high-quality sound systems in customer facilities (such as large churches). A major cost component (60–80 per cent) for these systems was the equipment (speakers, amplifiers, etc.), which was sourced from the United States and paid for in U.S. dollars (USD). Alliance quoted prices to customers in Canadian dollars (CAD) by converting equipment costs from USD to CAD based on the exchange rate on the day of the quotation. Since it was often months later that Alliance actually converted cash and paid the supplier in USD, it found that a change in the exchange rate during that time could directly reduce the margin on the sale. The operations manager had to devise a risk mitigation strategy and/or business process change.

Teaching Note: 8B14M116 (6 pages)
Issues: Foreign exchange; business process; small business; cash; Canada
Difficulty: 3 - Undergraduate



CRISIS IN CYPRUS: WAS IT DIFFERENT THIS TIME?
Nandita Yadav, Pratap Chandra Biswal

Product Number: 9B13N016
Publication Date: 9/10/2013
Revision Date: 9/13/2013
Length: 11 pages

Cyprus is a small island member of the European Union, constituting 0.2 per cent of the eurozone gross domestic product. During its growth phase, the Cypriot banking system developed vulnerabilities after suffering heavy losses during the Greek sovereign debt crisis. The European Central Bank, the International Monetary Fund and the European Union offered a bailout of US$16.9 billion if the Cypriot government could raise US$7.54 billion from within. The government had a few options on the table — a “one-off” stability levy on all bank deposits (a solution loathed by both native and foreign depositors), a bank restructuring plan, seeking help from Russia (which expected access to the island’s oil and gas reserves) and a complete banking system bailout (which would come with oversight and control from those offering the bailout). The economy was fast approaching a standstill and Cyprus had only two days to strike a deal to avoid the collapse of its banking system.

Teaching Note: 8B13N016 (14 pages)
Industry: Finance and Insurance
Issues: Financial crisis; eurozone; bailout; Cyprus
Difficulty: 5 - MBA/Postgraduate



RODAMAS GROUP: DESIGNING STRATEGIES FOR CHANGING REALITIES IN EMERGING ECONOMIES
Marleen Dieleman, Shawkat Kamal

Product Number: 9B09M049
Publication Date: 6/25/2009
Length: 16 pages

By 2008, Rodamas Group, owned by the ethnic Chinese Tan family, was one of the top-20 business groups in Indonesia. The company started as a trading firm in 1951 and, over time, became a joint venture partner in manufacturing businesses with a range of mainly Japanese partners. In the 1980s, the company transferred to the second generation leader. The businesses included glass manufacturing (with Asahi), personal care products (with Kao), packaging (with Dai Nippon) and MSG production. The role of Rodamas in these partnerships was to deal with local regulations, hire local personnel and distribute the products in Indonesia. When the then President Suharto was toppled in the Asian Crisis in 1998, Indonesia underwent several drastic changes, including the transition to democracy. Its economy became more open, and foreign firms were allowed to operate in the country without having a local partner. In addition, several global business developments, including the tendency of multinationals to rely on lawyers and consultants rather than local equity partners, threatened the Rodamas business model. In view of this, the current leader, Mucki Tan, is reconsidering the future of his company and weighing strategic options: 1) internationalize with existing partners; 2) develop own businesses that need little technology, such as property; 3) buy existing manufacturing firms; 4) focus on distribution of products for foreign multinationals; 5) focus on a traditional partnership role with a new wave of foreign direct investment (FDI) from developing market multinationals, more specifically, China. Students are asked to analyze the company and its environment, decide on a strategic direction and reflect on the consequences.

Rodamas Group: Designing the Portfolio (9B14M029) is available as a supplement to this case.


Teaching Note: 8B09M49 (10 pages)
Industry: Manufacturing
Issues: Joint Ventures; Emerging Markets; Strategic Scope; Strategic Change
Difficulty: 4 - Undergraduate/MBA



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

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

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

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


Chapter 3:
Balance of Payments

ARVIND MILLS: RE-EVALUATING PROFITABILITY
Murray J. Bryant, Rajeev Khera

Product Number: 9B04B008
Publication Date: 8/10/2004
Revision Date: 10/8/2009
Length: 11 pages

Arvind Mills, a large Indian textile and garment manufacturer, has to assess the costs of a large order, as a basis for a price quotation. The company is in a significant loss position. The textile industry in India is constrained by government regulations and the industry is critical as both an export earner and a major employer in the economy. However, the industry is losing share to China and must change to meet that threat. The vice-president of operations must assess the costs associated with the order, including an assessment whether to use the traditional cost system or the customer and manufacturing based activity cost system. The decision is also strategic as this order is at the core of the company's new strategy to be both a designer and manufacturer.

Teaching Note: 8B04B08 (2 pages)
Industry: Manufacturing
Issues: Pricing; Internationalization; Government Regulation; Cost Systems
Difficulty: 4 - Undergraduate/MBA



BANK OF NOVA SCOTIA: THE MEXICO DECISIONS (A)
David W. Conklin

Product Number: 9A96H001
Publication Date: 4/15/1996
Revision Date: 9/15/1998
Length: 26 pages

The Bank of Nova Scotia faced the decision whether to expand its investments in the Mexican bank, Inverlat. In 1995, it had to write down the value of its investments from $154-million to $10-million as a result of the Mexican peso crisis and subsequent recession. This case examines the environment of business in Mexico during the time of the currency devaluation. In particular, it focuses on the factors underlying the peso crisis. Privatization of Mexico's banks and liberalization of regulations created new opportunities, but at the same time, resulted in extreme instability within the financial sector. While Mexico offered the opportunity to become a major player in the growing Latin American market, nevertheless there were risks of major losses. (A sequel to this case is available, titled Bank of Nova Scotia: The Mexico Decisions (B), case 9A97H004.)

Teaching Note: 8A96H01 (9 pages)
Industry: Finance and Insurance
Issues: Exchange Rates; Management in a Global Environment; Environmental Change; Financial Institutions
Difficulty: 4 - Undergraduate/MBA


Chapter 4:
Corporate Governance Around the World

ALIBABA'S IPO DILEMMA: HONG KONG OR NEW YORK?
Emir Hrnjić

Product Number: 9B14N035
Publication Date: 12/4/2014
Revision Date: 12/4/2014
Length: 15 pages

In April 2014, Alibaba’s impending initial public offering (IPO) projected to be among the world’s largest IPOs. Alibaba faced many choices regarding ownership structure, trading location, IPO pricing and IPO timing. The Hong Kong Stock Exchange seemed like a natural fit for its IPO due to geographical, cultural and language proximity. Furthermore, 86.7 per cent of Alibaba’s revenues originated within China. However, Alibaba insisted on “partnership governance,” while the Hong Kong Stock Exchange did not allow listing of companies with dual-class share structure. In contrast, the New York Stock Exchange and NASDAQ did not object to Alibaba’s proposed ownership structure. While the Hong Kong investors knew Alibaba’s business better, the New York exchanges provided more liquidity and visibility. Against this backdrop, Alibaba needed to make difficult decisions regarding its IPO.

Teaching Note: 8B14N035 (11 pages)
Industry: Information, Media & Telecommunications
Issues: IPO; valuation; China
Difficulty: 4 - Undergraduate/MBA



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



GOVERNANCE FAILURE AT SATYAM
Ajai Gaur, Nisha Kohli

Product Number: 9B11M028
Publication Date: 6/22/2011
Length: 14 pages

An acquisition decision by Satyam Corporation created discontent among shareholders and led to a series of investigations that revealed fraud of about INR 50 billion, leading to resignations by several board members and the CEO. This episode became a mockery of corporate governance practices, raising questions about the efficacy of well-accepted governance norms.

This case covers the events that led to the failure of Satyam. The roles of not only the “promoter” but also other parties, such as the managers, board of directors, auditors and bankers, are discussed in detail. The case draws attention to various corporate governance and ethical issues and provides an opportunity to discuss measures that should be taken by regulators, auditors, and other bodies to prevent fraud.


Teaching Note: 8B11M028 (9 pages)
Industry: Information, Media & Telecommunications
Issues: Corporate Governance; Auditing; Board of Directors; Fraud; India
Difficulty: 4 - Undergraduate/MBA


Chapter 5:
The Market for Foreign Exchange

ENCANA CORPORATION: ACCOUNTING FOR FOREIGN CURRENCY
Darren Henderson, Chris Sturby, Gillian Heisz

Product Number: 9B12B031
Publication Date: 11/7/2012
Revision Date: 12/10/2012
Length: 25 pages

Encana is reassessing its choice for functional currency and presentation currency. Historically, Encana has used Canadian dollars for its functional currency and US dollars for its presentation currency, but changes in Encana’s operations over the past several years have caused the company to revisit its choices. For functional currency, Encana must determine whether Canada continues to represent its primary economic environment. Further, Encana must consider whether its reasons for using U.S. dollars as presentation currency remain valid. To make its decisions, Encana must apply the guidance in IAS 21, “The Effects of Changes in Foreign Exchange Rates.” Finally, Encana must determine the impact of its choices on the financial statements.

Teaching Note: 8B12B031 (7 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Accounting Policy Choice; Foreign Currency; IFRS; Canada
Difficulty: 4 - Undergraduate/MBA



WESTWOOD PLASTICS INC.
James E. Hatch, Manpreet Hora

Product Number: 9B06N017
Publication Date: 10/12/2006
Revision Date: 5/2/2013
Length: 9 pages

The vice-president of finance for Westwood Plastics, Inc. (Westwood), wants to assess the impact of the possibility of a weakening Canadian dollar on the company's financial health given its exposure to the Euro. Because Westwood is required by a loan covenant to generate a minimum level of pre-tax earnings, management is concerned about the possible impact of the exchange rate volatility on projected income and cash flows. The vice-president of finance is considering both an option and a forward strategy to minimize the foreign exchange risk Westwood is facing. She must decide how to use financial instruments to hedge the risk.

Teaching Note: 8B06N17 (22 pages)
Industry: Manufacturing
Issues: Risk Management; Foreign Exchange; Hedging
Difficulty: 4 - Undergraduate/MBA


Chapter 6:
International Parity Relationships and Forecasting Foreign Exchange Rates

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



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 7:
Futures and Options on Foreign Exchange

PARLIAMENTARY ELECTION IMPACT ON INDIAN CAPITAL MARKETS
Vipul Kumar Singh, Faisal Ahmed

Product Number: 9B14N014
Publication Date: 7/23/2014
Revision Date: 7/23/2014
Length: 8 pages

On the eve of the announcement of the results of India’s 2009 elections, a senior research analyst with a leading brokerage and investment house in India was trying to predict the possible outcomes of the election and to gauge their impact on the stock markets. The analyst wanted to recommend some optimal options strategies to his clients, as the outcome of events such as elections always led to high volatility and consequently high risks and returns. The formation of a majority government would likely give a significant boost to the markets, while the formation of a coalition government would likely have the opposite effect. The analyst was struggling to determine the kind of strategy (aggressive or defensive) he should suggest. He was working to help his clients make exponential profits in a short span of time without the fear of losing significant money.

Teaching Note: 8B14N014 (18 pages)
Industry: Finance and Insurance
Issues: Index options; options strategies; India
Difficulty: 4 - Undergraduate/MBA



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

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

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

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



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

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

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

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


Chapter 8:
Management of Transaction Exposure

BARRICK GOLD: ELIMINATING THE GOLD HEDGING STRATEGY
Murray J. Bryant, Ken Mark

Product Number: 9B11B002
Publication Date: 3/7/2011
Length: 16 pages

Barrick Gold, the largest gold producer in the world, has taken steps to eliminate its longstanding gold hedging program. In its early years, Barrick’s hedging program was a key factor allowing the firm to grow amid falling gold prices. But Barrick’s management team faced questions about its hedging program when gold prices started to rise in the 2000s. The case allows students to review Barrick’s hedging program and consider the impact of its decision not to hedge going forward.

Teaching Note: 8B11B002 (4 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Hedging; Stakeholder Analysis; Strategic Scope; Strategy Implementation; Gold
Difficulty: 4 - Undergraduate/MBA



FREEDOM'S HEDGE
Chuck Grace

Product Number: 9B09N019
Publication Date: 10/30/2009
Length: 8 pages

In September 2007, the marketing manager for London Life Insurance Company's (London Life) Freedom Funds was preoccupied by thoughts of his upcoming meeting with London Life's vice-president of Marketing, Individual Retirement and Investment Services. The vice-president was concerned with the past summer's appreciation of the Canadian dollar versus the U.S. dollar. Since March of 2007, the Canadian dollar had appreciated over 10 per cent against its U.S. counterpart with the result of eroding returns on London Life's U.S. funds. The marketing manager had been asked to research the drivers behind the sudden change in currency and whether it was a sustainable trend; if so, he was to advise the steps London Life should take to protect its investment returns on its U.S. funds. Complicating the analysis was the knowledge that his advice needed to incorporate and respect London Life's investment philosophies, be easily understood by its almost 3,000 financial advisors and their clients, and acknowledge the complexities surrounding the implementation of currency-hedging strategies.

Teaching Note: 8B09N019 (5 pages)
Industry: Finance and Insurance
Issues: Hedging; Financial Strategy; Valuation; Management Accounting; Investment Analysis
Difficulty: 2 - Intro/Undergraduate



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


Chapter 9:
Management of Economic Exposure

ACPANA BUSINESS SYSTEMS INC.: EFFECT OF CURRENCY EXPOSURE ON REVENUE
Colette Southam, Robert Schenkel

Product Number: 9B11N010
Publication Date: 7/20/2011
Length: 6 pages

The vice president of operations for Acpana Business Systems Inc., a Canadian software development and backup-as-a-service provider located in Toronto, Canada, is concerned that the recent appreciation of the Canadian dollar is significantly affecting Acpana’s revenue and undermining the company’s organic growth. The case focuses on understanding and quantifying the risks associated with exchange rate fluctuation and its impact on a firm’s revenues and costs. The case introduces instruments available to hedge risk, including forward contracts and put and call options.

Teaching Note: 8B11N010 (10 pages)
Industry: Administrative, Support, Waste Management and Remediation Services
Issues: Foreign Exchange; Risk Management; Put and Call Options; Forward Contracts
Difficulty: 3 - Undergraduate



PIXONIX INC. - ADDRESSING CURRENCY EXPOSURE
Colette Southam, Karim Moolani

Product Number: 9B08N013
Publication Date: 6/30/2008
Length: 4 pages

The chief financial officer of Pixonix Inc. is trying to decide if she should hedge, given the current strength of the Canadian dollar. Her company licenses proprietary software through a U.S. company that will cost $7.5 million in three months time. The case provides the students with the opportunity to understand the impact of exchange rate fluctuations on her firm's cash flows and some of the instruments available to manage risk, including puts and calls and forward contracts.

Teaching Note: 8B08N13 (10 pages)
Industry: Administrative, Support, Waste Management and Remediation Services
Issues: Hedging; Foreign Exchange
Difficulty: 2 - Intro/Undergraduate


Chapter 10:
Management of Translation Exposure

SYMANTEC CORPORATION CONVERTIBLE NOTES WITH CALL SPREAD
Walid Busaba, Zeigham Khokher, Guorong Yang

Product Number: 9B10N018
Publication Date: 9/19/2012
Revision Date: 9/19/2012
Length: 7 pages

The board of directors of Symantec Corporation asked a consultant for an independent opinion on an important financing decision. Symantec had been working with several investment banks on a plan to raise debt to repurchase common shares. The consultant found it to be an interesting financing plan; whereas repurchasing shares immediately would increase Symantec's financial leverage, converting the notes in the future would reduce leverage at a potentially significant dilutive cost to the firm's equity. More interestingly, the company negotiated with the investment banks to buy a call spread on its own stock, covering the same number of shares as would be issued to noteholders upon conversion. After reviewing the proposal, the consultant tried to understand the motivation behind the structure of the transaction. Why would Symantec choose to issue convertible bonds, and why would it intend to buy the call spread?

Teaching Note: 8B10N18 (8 pages)
Industry: Professional, Scientific, and Technical Services
Issues: Convertible Bonds; Debt Offering; Derivative Securities; Capital Raising; United States
Difficulty: 4 - Undergraduate/MBA



TRANS GLOBAL CORPORATION
Charles McPeak, Owen P. Hall, Stella Hung-Yuan Chu

Product Number: 9B07B006
Publication Date: 7/4/2007
Length: 7 pages

Trans Global Corporation is a multinational company facing a complex set of inter-related problems including: international financial reporting standards, impact of a country's EU status, functional currency decisions, currency translation methods, exchange rates and impact of using derivatives to hedge currency changes.

Teaching Note: 8B07B06 (11 pages)
Issues: Gains and Losses on Currency Transactions; International Financial Reporting Standards; Exchange Rates
Difficulty: 4 - Undergraduate/MBA


Chapter 11:
International Banking and Money Market

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



THE RISE AND FALL OF AIG
Stephen Sapp

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

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

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



AL HILAL BANK: SETTING AN EXAMPLE
Assem Safieddine, Ken Mark

Product Number: 9B11N019
Publication Date: 10/24/2011
Revision Date: 3/8/2012
Length: 15 pages

On December 22, 2010, the chief executive officer of Al Hilal Bank in the United Arab Emirates was preparing to address a group of international banking executives who were interested in understanding what decisions had contributed to Al Hilal’s success thus far, and what challenges the bank would face in 2011 and beyond. In two and a half years, Al Hilal had developed a respected and fast-growing Islamic bank. The Al Hilal team had combined a foundation of strong corporate governance practices, a strong risk management framework, and an innovative customer service culture. As proof of its success, it had become profitable in the third quarter of 2009, and profits were rising rapidly.

Teaching Note: 8B11N019 (5 pages)
Industry: Finance and Insurance
Issues: Islamic Banking; Middle East
Difficulty: 4 - Undergraduate/MBA


Chapter 12:
International Bond Market

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



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

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

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

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



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 13:
International Equity Markets

MANISH ENTERPRISES: A GROWTH VERSUS PROFITABILITY DILEMMA
Shelly Singhal, Shailendra Kumar Rai

Product Number: 9B14N021
Publication Date: 8/22/2014
Revision Date: 8/21/2014
Length: 7 pages

In 2012, Manish Enterprises, a leading coal supplier firm located in Ludhiana, India, was facing a decline in growth. A year later, a business graduate was appointed as the chief executive officer of the company. He managed to reduce the cash cycle from six months to three months by running the operations of the firm efficiently. Sales increased by 127 per cent, and the firm began financing its growth by taking advances from customers. The firm was thus able to reduce its investment in current assets. However, despite adopting best practices, the profitability of the business was declining. The challenges then faced by Manish Enterprises were to manage growth and liquidity while retaining profitability.

Teaching Note: 8B14N021 (13 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Working capital; growth; profitability; coal trading; tender; India
Difficulty: 5 - MBA/Postgraduate



CANADIAN PACIFIC LTD: UNLOCKING SHAREHOLDER VALUE IN A CONGLOMERATE
Michael R. King, Michael Zawalsky

Product Number: 9B14N017
Publication Date: 6/25/2014
Revision Date: 9/28/2015
Length: 13 pages

In January 2001, the chief executive officer (CEO) of Canadian Pacific Limited (CPL) was contemplating the future of his firm. CPL was one of Canada’s oldest conglomerates with operations in railways, shipping, natural resources and hotels. Its stock market capitalization of CDN$13.5 billion reflected a conglomerate discount, estimated at 12 to 35 per cent of the value. In order to eliminate this conglomerate discount and maximize shareholder value, the CEO weighed the pros and cons of asset divestitures or spinoffs. Would it make sense to keep some of the related business together to preserve economies of scale and scope and to maintain synergies? What would be the tax implications of each option? There were numerous operational and legal implications to consider. Knowing he had to make a decision quickly, the CEO looked for the option that would unlock the most value for CPL’s shareholders.

Teaching Note: 8B14N017 (14 pages)
Industry: Other Services
Issues: Financial strategy; restructuring; valuation; spinoff; Canada
Difficulty: 4 - Undergraduate/MBA



7-ELEVEN IN THAILAND
Sundaravaradhan Venkatesh, Sandhya Bhatia

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

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

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


Chapter 14:
Interest Rate and Currency Swaps

PREMIER FOODS PLC: INTEREST RATE SWAPS
Jumana Zahalka, Anand Srinivasan

Product Number: 9B13N015
Publication Date: 10/31/2013
Revision Date: 10/29/2013
Length: 10 pages

A vice-president of a hedge fund must determine whether his fund will take a 5 per cent equity stake in Premier Foods Plc (Premier). At the time of the case, Premier, a publicly listed U.K. food and beverage company, was heavily indebted following a period of aggressive acquisition growth. Moreover, Premier had issued interest rate swaps on the majority of its debt. As the financial crisis unraveled, interest rates dramatically declined, and Premier’s interest rate swaps appeared to be further draining the firm. Against this backdrop, the case sets its ultimate objective, which is to simulate the vice-president’s analysis of the firm’s debt, interest rate swaps, caps and floors before deciding whether to invest in Premier.

Teaching Note: 8B13N015 (11 pages)
Industry: Accommodation & Food Services
Issues: Interest rate swaps; interest rate cap/floor; options; risk management; United Kingdom; United States
Difficulty: 4 - Undergraduate/MBA



ROTHMANS INC. — THE CURIOUS CASE OF THE INTEREST RATE SWAP
Karen Lightstone

Product Number: 9B12B025
Publication Date: 8/28/2012
Revision Date: 10/16/2012
Length: 7 pages

This case provides students with an opportunity to evaluate the mechanics and effectiveness of an interest rate swap in an actual situation. Rothmans Inc. entered into an interest rate swap in 2001, and the company’s public financial statements allow readers to follow the swap through several years until the eventual early pay-off in 2005. Students can determine if the decision to exit the interest rate swap early was good or bad. Rothmans has only one five-year bank term loan and one interest rate swap covering half of the value of the loan. This simplicity provides an excellent learning environment using publicly available data.

Teaching Note: 8B12B025 (17 pages)
Industry: Agriculture, Forestry, Fishing and Hunting
Issues: Interest Rate Swap; Discount Rate; Present Value; Fair Value
Difficulty: 3 - Undergraduate



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 15:
International Portfolio Investment

INVESTMENTS: DELINEATING AN EFFICIENT PORTFOLIO
Upasana Mitra, M. Kannadhasan

Product Number: 9B14N012
Publication Date: 6/25/2014
Revision Date: 6/20/2014
Length: 7 pages

A student in his final year at a management school has been asked by his uncle to suggest an optimal investment portfolio for the reinvestment of his retirement account. His uncle wants to invest only in mutual funds managed by reputed asset management companies that have historically given superior returns. He also wants to limit the risk involved to less than 10 per cent per annum. The student now needs to prepare a portfolio that offers the highest possible return for the risk defined by his uncle.

Teaching Note: 8B14N012 (16 pages)
Industry: Finance and Insurance
Issues: Investments; portfolio management; efficient frontier; mutual funds; India
Difficulty: 5 - MBA/Postgraduate



POWERSHARES EXCHANGE-TRADED FUNDS
Chuck Grace, Samir Haji Remtulla

Product Number: 9B10N020
Publication Date: 8/19/2010
Length: 14 pages

In early January, 2009 the president of Invesco Trimark Ltd. (Invesco Trimark) was optimistic about the year ahead, particularly when compared to the perfect storm of 2008. That year saw global investment markets in turmoil, and Invesco Trimark's mutual fund assets had plummeted to almost half its value. The president and his team had spent nearly a year working and re-working a new product launch and by 2009 thought they had developed a unique and differentiated idea that would be difficult for the competition to replicate. This idea was to introduce to the Canadian market a suite of exchange-traded funds (ETFs) built around investments managed by Invesco Trimark's sister company in the United States. This new product combined key features of ETFs traded on U.S. exchanges with key features of Canadian mutual funds. As innovative and exciting as ETFs promised to be, the president knew that it would be met with reservation from Invesco Trimark's traditional mutual fund distributors who remained skeptical. The president wondered how best to communicate the new product idea given the contradictory and competing ideas that existed not only in the market but in his own firm. Was it possible for mutual funds and ETFs to co-exist?

Teaching Note: 8B10N020 (4 pages)
Industry: Finance and Insurance
Issues: Product Strategy; New Products; Active Versus Passive Investing; Exchange Traded Funds
Difficulty: 3 - Undergraduate



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


Chapter 16:
Foreign Direct Investment and Cross-Border Acquisitions

GABRIEL RESOURCES: FOREIGN DIRECT INVESTMENT IN ROMANIA
Craig Dunbar, John Peloza

Product Number: 9B14N025
Publication Date: 9/4/2014
Revision Date: 9/4/2014
Length: 14 pages

It is year-end 2013 and management at Gabriel Resources, a Canadian junior mining corporation, is attempting to handle investor relations and political tensions surrounding its Rosia Montana mine project in Romania. Recently, the Romanian Parliament voted overwhelmingly against granting the final permit for the gold and silver mine until a more thorough environmental and legal framework is established. Although the company promises that its project will bring significant financial benefits to the state and needed infrastructure improvements and employment in the region, both national and international civilian and non-governmental organizations have protested vociferously against a development that they see harming not only the fragile geographic ecosystem but also historical artifacts that have been a major tourist draw. The draft bill was set to allow the company to begin work on developing the potentially lucrative mine, which has been 15 years in the making and has not yet generated any revenues. Investors are worried and the company’s share price is sinking. How can the company calm shareholder panic and negative stock price movement? What can it do to persuade the Romanian government and people to support the mine? Spreadsheet for students is available, see 7B14N025.

Teaching Note: 8B14N025 (6 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Valuation; political risk; Romania
Difficulty: 4 - Undergraduate/MBA



HUAWEI ENTERS THE UNITED STATES
Tim Simpson, Ilan Alon

Product Number: 9B13N013
Publication Date: 7/24/2013
Revision Date: 10/28/2015
Length: 9 pages

Huawei has attempted to enter and acquire assets in the United States, but there are issues involved in understanding foreign market risk and the political challenges of internationalization. The Committee on Foreign Investment in the United States (CFIUS) twice denied Huawei’s acquisition of a U.S. computer company. Huawei had to transform its company image and reputation, changing from a Chinese company with Chinese characteristics into a global corporation equivalent to Cisco Systems or Ericsson. This case encourages students to address the issues of internationalization in an incompletely open global market, the government intervention in markets and the broader issues that arise with the geo-political and geo-economic shifts of 21st century.

Teaching Note: 8B13N013 (6 pages)
Industry: Information, Media & Telecommunications
Issues: Political risk; international expansion; foreign direct investment; business strategy; United States
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



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

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

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

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


Chapter 17:
International Capital Structure and the Cost of Capital

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



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



CAPITAL BUDGETING MANAGEMENT OF BHARTI AIRTEL - THE PROFITABILITY IMPACT
Sandeep Goel

Product Number: 9B14N006
Publication Date: 4/11/2014
Revision Date: 4/7/2014
Length: 5 pages

Sound financial management is the most important element in the viability of any business undertaking, and capital investment decisions are the foundation stone of this process. A company can pursue either an internal, organic approach to its financing options or an external, inorganic approach that uses borrowed funds to make acquisitions it hopes will increase its business. This is the route taken by Bharti Airtel Limited, India’s leading telecommunications giant. Beginning in 2010, it has borrowed heavily on the international market to invest in acquisitions of a 3G licence in India, in Zain Africa and in the broadband wireless access branch of Qualcomm Inc. However, due to many causes — including the effects of the global recession on the industry; the highly competitive Indian telecommunications market; restructuring and disorganization in the firm’s top management; and lack of innovation in offering and delivering new services in India — the company has experienced not the growth it expected from its expansion strategy, but a steady decline in profits. How can the management turn this situation around and regain the company’s position as a leader in the telecommunications market in India and globally?

Teaching Note: 8B14N006 (9 pages)
Industry: Information, Media & Telecommunications
Issues: Capital budgeting; profitability; telecom; financial viability; India
Difficulty: 5 - MBA/Postgraduate


Chapter 18:
International Capital Budgeting

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



FRANKLIN TEMPLETON INDIA: THE CASH HOLDING DILEMMA
Nupur Pavan Bang, Dhruva Raj Chatterji, Vikram Kuriyan

Product Number: 9B12N030
Publication Date: 3/14/2013
Revision Date: 2/11/2013
Length: 17 pages

Franklin Resources Inc. is one of the largest and most respected global fund houses with a presence in India. The case highlights the structure, investment process and philosophy of its fund management team in India.

The case presents the specific issue of fund managers holding large amounts of cash during market downturns. There is one school of thought that attributes lower volatility and better risk-adjusted returns with high cash holdings. The other school of thought believes this approach goes against the philosophy of investment management. It believes people give money to fund managers to invest, not to hold in the form of cash. A fund should always be fully invested or nearly fully invested.

The chief investment officer at Franklin Templeton India is of the second school of thought and is faced with the challenge of convincing a team of young analysts and managers of its soundness. He presents a set of data to this team and asks them to analyze performance during periods of market downturns in order to arrive at a conclusion.


Teaching Note: 8B12N030 (9 pages)
Industry: Finance and Insurance
Issues: Asset allocation; mutual fund; portfolio performance; India
Difficulty: 5 - MBA/Postgraduate


Chapter 19:
Multinational Cash Management

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



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

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

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


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



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


Chapter 20:
International Trade Finance

EXPORTING TO GHANA
David J. Sharp, Ken Mark

Product Number: 9B05B006
Publication Date: 1/31/2005
Revision Date: 9/24/2009
Length: 4 pages

A loan assessment officer at Export Development Canada is evaluating a proposed deal involving the export of refurbished machines used in the forestry industry. He must decide whether Export Development Corporation should extend loans to a foreign firm that is interested in purchasing from a Canadian supplier. Issues include international business risk and the role of an export development agency in facilitating a country's exports.

Teaching Note: 8B05B06 (4 pages)
Industry: Agriculture, Forestry, Fishing and Hunting
Issues: Uncertainty; Risk Analysis; Forestry; Exports
Difficulty: 4 - Undergraduate/MBA



KOMANDOR SA (A)
David J. Sharp, Karen Bong

Product Number: 9B01B013
Publication Date: 10/18/2001
Revision Date: 12/7/2009
Length: 9 pages

Komandor SA is a subsidiary of a Polish holding company that manufactures sliding doors and closet organizer systems. The company president and his Canadian counterpart must decide on a transfer pricing policy for consulting services and associated components shipped between the two countries. Polish tax regulations seem unclear and arbitrary and the tax auditor has disallowed the consulting fees. The two presidents must decide whether allocating the consulting fee to product overhead will solve the problem.

Teaching Note: 8B01B13 (8 pages)
Industry: Manufacturing
Issues: International Accounting; International Trade; Transfer Pricing; Ethical Issues
Difficulty: 5 - MBA/Postgraduate



TRANSFER PRICING AT CAMECO CORPORATION
Walid Busaba, Nourhene Ben Youssef, Saqib A. Khan

Product Number: 9B14B011
Publication Date: 8/14/2014
Revision Date: 8/14/2014
Length: 8 pages

Transfer pricing used by multinational corporations to lower its tax burden, thereby increasing its consolidated income, can have far-reaching implications for the stakeholders, as a fund manager for Saskhedge fund found out the hard way. A stock investment the manager had made in Cameco Corporation has dropped its value by 20 per cent. In addition, Canada Revenue Agency has initiated a law suit against the firm for alleged tax avoidance in relation to the company's transfer pricing practices with its Swiss subsidiary. The suit could result in an additional tax liability of $800 million to $850 million. The manager needs to explain to the investment board the implications of the lawsuit on the stock price and advise the board on whether the projected $800 to $850 million is a fair estimate.

Teaching Note: 8B14B011 (4 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Transfer pricing; differential tax regimes; consolidated statements; financial reporting; Canada
Difficulty: 4 - Undergraduate/MBA


Chapter 21:
International Tax Environment and Transfer Pricing

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