Ivey Publishing

Applied Corporate Finance - A User's Manual

Damodaran, A.,2/e (United States, Wiley, 2006)
Prepared By Muhammad Fuad Farooqi, Ph.D. Student (Finance)
Chapter and Title Chapter Matches: Case Information
Chapter 2:
The Objective in Decision Making

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

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

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

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



HYPERION AURORA TRUST
Stephen R. Foerster, Nick Bontis

Product Number: 9A96B026
Publication Date: 3/13/1996
Revision Date: 2/5/2010
Length: 7 pages

A newly hired product manager at CIBC Securities Inc., one of the largest mutual fund administrators in Canada, is asked to develop an innovative equity mutual fund. In addition to examining the current product offering of the bank as well as the competition, she must examine the needs of the key stakeholders in this project. She realizes that it may prove difficult to make everyone happy. Among other suggestions she makes to the CEO, the proposed pricing structure of the new mutual fund is unprecedented and could prove to reshape the industry.

Teaching Note: 8A96B26 (6 pages)
Industry: Finance and Insurance
Issues: Mutual Funds; Pricing; Product Management
Difficulty: 4 - Undergraduate/MBA



BLUE JAY ENERGY AND CHEMICAL CORPORATION
Robert W. White, Andrew Depass, Mike Hill

Product Number: 9A90B052
Publication Date: 1/1/1990
Revision Date: 5/28/2003
Length: 24 pages

Eagle Corp. has made a tender offer for a further 15% of the shares of Blue Jay Energy. The price is well below what some feel is the real value of the shares. The focus of the case is on strategies to close a potential value gap in the context of a hostile takeover bid. The primary alternatives are to rely on a poison pill, spin-off and a leveraged recapitalization. The case is ideal to illustrate the use of the financial markets (synthetic white knight) to negotiate a deal.

Teaching Note: 8A90B52 (136 KB)
Industry: Manufacturing
Issues: Financial Strategy; Leverage; Restructuring; Mergers & Acquisitions
Difficulty: 4 - Undergraduate/MBA



JOE KILLORAN - INVESTOR ADVOCATE (A)
Stephen R. Foerster, Bruce Chin

Product Number: 9A98N005
Publication Date: 3/23/1998
Revision Date: 2/1/2010
Length: 11 pages

An investor advocate is faced with a dilemma over his shareholder proposals to the IRR Group mutual fund company. His proposals aimed to improve disclosure issues by the company and its mutual fund management practice to its mutual fund unitholders. At first, he focused on the governing bodies of the mutual fund industry to improve regulation but now was taking a bottom up approach and trying for change at the shareholder level. This case illustrates the controversial areas of corporate governance, investor activism, shareholder rights and corporate conflicts of interest in the Canadian mutual fund industry.

Teaching Note: 8A98N05 (5 pages)
Industry: Finance and Insurance
Issues: Mutual Funds; Investment Funds; Investments; Corporate Governance
Difficulty: 4 - Undergraduate/MBA



NOTE ON INSIDER TRADING
Robert W. White, Glenda Savage

Product Number: 9A95B040
Publication Date: 12/19/1996
Revision Date: 2/14/2002
Length: 15 pages

The purpose of this note is to provide a brief overview of the law concerning insider trading. Insider trading which may attract liability means generally dealing in securities while in possession of material which is non-public information. Insider trading is defined by a country's securities laws. Therefore, what constitutes insider trading differs somewhat between countries.

Issues: Business Law; Corporate Governance; Securities; Ethical Issues
Difficulty: 4 - Undergraduate/MBA


Chapter 3:
The Basics of Risk

LONDON SKI CLUB
Craig Dunbar, James E. Hatch, John Siambanpoulus

Product Number: 9A99N041
Publication Date: 8/10/2000
Revision Date: 1/21/2010
Length: 11 pages

The account manager of the Confederation Bank is being asked to significantly increase a loan to the London Ski Club, a not-for-profit organization (which has taken losses for the previous two years), in order to buy a key piece of equipment. Students will have the opportunity to size up the risks and opportunities presented by the borrower, prepare a projected income statement and balance sheet, assess the risks of lending to a not-for-profit enterprise, and to structure a loan deal.

Teaching Note: 8A99N41 (9 pages)
Industry: Arts, Entertainment, Sports and Recreation
Issues: Bank Lending; Non-Profit Organization; Cash Budgeting; Credit
Difficulty: 4 - Undergraduate/MBA



WRIGHT-ANDERSON MACHINES
Paul M. Bishop, Richard Nason

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

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

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



COW’S LONDON
Stephen R. Foerster, Rob Barbara

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

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

Teaching Note: 8A95B27 (7 pages)
Industry: Accommodation & Food Services
Issues: Bank Lending; Loan Evaluation; Financing
Difficulty: 4 - Undergraduate/MBA


Chapter 4:
Risk Measurement and Hurdle Rates in Practice

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



BC TELECOM INC.
James E. Hatch, Blair Zilkey

Product Number: 9A95B016
Publication Date: 10/16/1995
Revision Date: 2/10/2003
Length: 8 pages

Two managers attempt to compute the cost of capital for B C Telecom Inc. They discuss hurdle rates, dividend yields, stock issues, and borrowing history.

Teaching Note: 8A95B16 (9 pages)
Industry: Information, Media & Telecommunications
Issues: Cost of Capital; Capital Budgeting
Difficulty: 4 - Undergraduate/MBA



SUN HUNG KAI PROPERTIES LIMITED - COST OF CAPITAL
Larry Wynant, Geoff Crum, Peter Yuan

Product Number: 9A99N019
Publication Date: 9/7/1999
Revision Date: 1/21/2010
Length: 9 pages

Two managers attending a financial management course are attempting to compute the cost of capital for Sun Hung Kai Properties Limited, a well-known local Hong Kong firm. The two managers are somewhat 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.

Teaching Note: 8A99N19 (12 pages)
Industry: Real Estate and Rental and Leasing
Issues: Capital Budgeting; Cost of Capital
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 5:
Measuring Returns on Investments

CARIBBEAN INTERNET CAFE
Murray J. Bryant, Michelle Theobalds

Product Number: 9A98B002
Publication Date: 3/19/1998
Revision Date: 9/9/2009
Length: 5 pages

An entrepreneur is hoping to open Caribbean Internet Cafe in Kingston, Jamaica. He has gathered data on all the relevant costs: equipment, rent, labor, etc. He has also found a partner in the local telephone company, Jamaica Telecommunications Limited (JTL). JTL has provided equity and a long-term loan at favourable interest rates. He is now faced with the task of analyzing fixed, variable and start-up costs, contribution margin, and the concept of break-even to guide his decision.

Teaching Note: 8A98B02 (7 pages)
Industry: Arts, Entertainment, Sports and Recreation
Issues: Costs; Contribution Analysis; Break-Even Analysis
Difficulty: 4 - Undergraduate/MBA



LAURENTIAN BAKERIES
Stephen R. Foerster, Rob Barbara

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

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

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



RANPRO INC.
David C. Shaw, John Harris

Product Number: 9A85B027
Publication Date: 1/1/1985
Revision Date: 4/11/2003
Length: 5 pages

A manufacturer is considering mechanizing a highly labour-intensive system. He has received proposals with the related cost savings from two different manufacturers for different parts of the process. The president must analyze the information and determine whether the various proposals are financially feasible.

Teaching Note: 8A85B27 (11 pages)
Industry: Manufacturing
Issues: Capital Budgeting
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



THREE APPLICATIONS OF PRESENT VALUE
Darroch A. Robertson

Product Number: 9A96B053
Publication Date: 9/22/1996
Revision Date: 2/9/2010
Length: 3 pages

Three short applications of present value are presented as problems: capital assets, accounting for leases and bond valuation.

Teaching Note: 8A96B53 (5 pages)
Issues: Present Value
Difficulty: 4 - Undergraduate/MBA



KITCHEN HELPER INC.
Robert W. White, Jeff Hawkins

Product Number: 9A96B039
Publication Date: 7/26/1996
Revision Date: 2/5/2010
Length: 8 pages

The president of Kitchen Helper Inc. is seeking financing for his new invention. Commercial banks have refused to provide any further financing, and the president has rejected offers from venture capitalists. A private investor has expressed interest but wishes to see a cash budget and a pro forma income statement and balance sheet.

Teaching Note: 8A96B39 (18 pages)
Industry: Manufacturing
Issues: Cash Budgeting; Financial Planning; Forecasting; Funding
Difficulty: 4 - Undergraduate/MBA


Chapter 6:
Project Interactions, Side Costs and Side Benefits

INTRODUCTION TO REAL OPTIONS
Walid Busaba, Zeigham Khokher, Jaclyn Grimshaw

Product Number: 9B05N015
Publication Date: 8/12/2005
Revision Date: 10/4/2009
Length: 8 pages

The real options approach to capital budgeting uses an options-based analysis to evaluate the real (as opposed to the financial) potential of projects. By charting the options as a series of decision points and events, managers can understand the risks and rewards of the projects, and more fully assess their opportunities. This note introduces the real options approach and describes the four main categories: expansion and follow-on options, timing and delay options, abandonment options and options that introduce flexibility into production. The expansion option is discussed in detail, including sample calculations and decision trees.

Issues: Decision Trees; Capital Budgeting; Real Options; Expansion Option
Difficulty: 4 - Undergraduate/MBA



RAMSYNC BRIEF
Walid Busaba, Zeigham Khokher, Elliott Weinstein

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

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

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



PROCTER & GAMBLE - RESTRUCTURING THE EDIBLE OILS DIVISION
Robert W. White, Peter Giacomelli, James Vaux

Product Number: 9A96B011
Publication Date: 5/14/1996
Revision Date: 2/5/2010
Length: 14 pages

The primary decision is whether Procter & Gamble (P&G) Canada should abandon one or more of the edible oil product lines. The secondary decision, conditional on the first, is the method of production. The alternatives include outsourcing the production to P&G's U.S. plant in Ivorydale, Ohio, or to outsource to a new Canadian facility which will also produce Tenderflake, the primary competitor of P&G's product, Crisco. The primary focus is on marginal benefits and costs. (A Microsoft Excel spreadsheet is available for use with this case, product 7A96B011.)

Teaching Note: 8A96B11 (154 KB)
Industry: Manufacturing
Issues: Profitability Analysis; Capital Investment; Outsourcing; Relevant Costs
Difficulty: 4 - Undergraduate/MBA


Chapter 7:
Capital Structure: Overview of the Financing Decision

LAWSON MARDON GROUP LIMITED
Robert W. White, Ed Giacomelli

Product Number: 9A90B045
Publication Date: 1/1/1990
Revision Date: 3/20/2002
Length: 17 pages

The focus of the case is on the financial strategy of Lawson Mardon Group following an leveraged buyout. The immediate decision involves exploring the Euro-Commercial Paper Market and the Sterling Commercial Paper Market as possible alternatives to its current banking facility, a multi-option facility. The case is an ideal vehicle for initiating a discussion of interest rates, the term structure of interest rates, bond ratings and money market instruments. Three follow-up cases of the same name outlined subsequent events.

Teaching Note: 8A90B45 (21 pages)
Industry: Manufacturing
Difficulty: 4 - Undergraduate/MBA



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

Product Number: 9A99N016
Publication Date: 8/25/1999
Revision Date: 1/21/2010
Length: 15 pages

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

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



DARROW ALUMINUM INC. - THE LAMINATED PRODUCTS COMPANY SPIN-OFF
Robert W. White, Alexa Nick, Kevin Bright, Barbara Czyzowski

Product Number: 9A96B020
Publication Date: 5/14/1996
Revision Date: 2/5/2010
Length: 16 pages

An integrated aluminum producer adjusted its priorities and sought to sell businesses not strategic to its core aluminum operations. Among the first identified to be sold was its Laminated Products Company (LPC). LPC, located in the southern U.S., was the leading North American producer of cigarette pack liner foil, both in terms of market share and technological capabilities. The focus of the case is on the efforts of a management team to structure a deal to purchase LPC.

Teaching Note: 8A96B20 (249 KB)
Industry: Manufacturing
Issues: Venture Capital; Valuation; Financial Strategy; Restructuring
Difficulty: 4 - Undergraduate/MBA



PEARLMAN AND COMPANY - MANAGEMENT BUYOUT
James E. Hatch, Michael J. Robinson

Product Number: 9B04N003
Publication Date: 1/26/2004
Revision Date: 10/15/2009
Length: 14 pages

A merchant bank is considering the financing of a leveraged buyout of a private jewelry manufacturer. A representative from the bank must determine what risks are associated with this investment and if the financing fits the banks investment criteria. If he decides to invest in the jewelry manufacturer, he would need to structure an appropriate deal to be competitive with other merchant banks. An Excel spreadsheet with the financial model is available, product 7B04N003.

Teaching Note: 8B04N03 (11 pages)
Industry: Finance and Insurance
Issues: Strategy and Resources; Leveraged Buyout; Venture Capital
Difficulty: 4 - Undergraduate/MBA


Chapter 8:
Capital Structure: The Optimal Financial Mix

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



COLUMBIA RIVER PULP COMPANY INC. - RECAPITALIZATION
Robert W. White, Patrick Brady

Product Number: 9A90B036
Publication Date: 1/1/1990
Revision Date: 3/25/2002
Length: 20 pages

The corporate finance manager in the Toronto-Dominion Bank's forest products group, was reviewing a refinancing request for $200MM from Columbia River Pulp Company (CRP). In addition, CRP had requested a $25MM operating facility. CRP owned and operated a world class kraft market pulp mill located in Longview, Washington. CRP had a negative net worth, in excess of $200MM. This had the potential to be a turnaround situation; cash flow versus balance sheet lending. The case permits an extensive size-up and detailed loan granting decision. (This case can be used with two related cases bearing the same name, 9A95B034 and 9A90B037. A Microsoft Excel spreadsheet is also available for use with this case, product 7A90B036.)

Teaching Note: 8A90B36 (160 KB)
Industry: Manufacturing
Difficulty: 4 - Undergraduate/MBA



OCELOT INDUSTRIES LTD.
Robert W. White, Dominic Costantini, Karen Soboren

Product Number: 9A94B012
Publication Date: 11/14/1995
Revision Date: 2/19/2010
Length: 18 pages

Ocelot Industries Ltd. is a resource development company which operates in three distinct business divisions. Gordon Capital Corporation, one of Canada's leading independent investment dealers, purchased 25 per cent of Ocelot's outstanding shares because it believed that the shares were undervalued. Three years later, the share price was still believed to be undervalued, and at the same time, a director at Gordon proposed a re-organization of Ocelot's operating units. The case raises two questions: whether or not the proposed restructuring is the best option available, and whether this restructuring would be accepted by the principal stakeholders. (An 18-minute video can be purchased for the case, video 7A94B012.)

Teaching Note: 8A94B12 (10 pages)
Industry: Manufacturing
Issues: Bankruptcy; Restructuring; Financing; Financial Strategy
Difficulty: 4 - Undergraduate/MBA


Chapter 9:
Capital Structure: The Financing Details

LIFE IMAGING SYSTEMS INC.
James E. Hatch, Roman Duch

Product Number: 9A97N010
Publication Date: 6/3/1997
Revision Date: 2/5/2010
Length: 11 pages

The president of University Hospital, which is the sole owner of Life Imaging Systems Inc., has identified the need for a substantial amount of funding to commercialize the firm's imaging product. He has approached the MDS Health Venture Capital Corp. (representing a number of co-investors) to see if a mutually acceptable financial arrangement can be worked out. The case involves putting together a deal that meets the needs of the company and its stakeholders on the one hand and the venture capital firm and its co-investors on the other.

Teaching Note: 8A97N10 (12 pages)
Industry: Health Care Services
Issues: Venture Capital
Difficulty: 4 - Undergraduate/MBA



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

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

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

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



LAWSON MARDON GROUP LIMITED - CORPORATE ASSET FUNDING FACILITY
Robert W. White, Barbara Quinn

Product Number: 9A90B044
Publication Date: 1/1/1990
Revision Date: 3/15/2002
Length: 13 pages

The treasurer of Lawson Mardon Group Limited (LMG) was reviewing the company's current financial structure in light of an innovative financing alternative that had recently become available in Canada. It was his objective to pursue a financial strategy that provided the maximum flexibility to raise funds in all financial markets under the most favourable terms. He had recently begun to investigate the possibility of asset securitization as a way to better utilize the company's existing asset base. More specifically, a proposal for the ongoing securitization of a portion of LMG's accounts receivable had been presented by Citibank Canada. Benefits held out in the proposal to LMG included lower financing costs, an improved return on assets and a reduction in leverage.

Teaching Note: 8A90B44 (15 pages)
Industry: Manufacturing
Difficulty: 4 - Undergraduate/MBA



FAR EASTERN TEXTILE LTD.: THE SIZES OFFERING
Larry Wynant, Peter Yuan

Product Number: 9B01N004
Publication Date: 5/18/2001
Revision Date: 2/1/2013
Length: 20 pages

Far Eastern Textile, a major Taiwanese textile and telecommunications company, is considering its options for raising US$130 million in a new round of global fund raising. The options of a new common stock or long term debt issue are explored but specific attention is paid to an option raised by the company's investment banker. This option entails the issuance of an innovative convertible debt instrument which combines a zero coupon and a significant conversion premium over the current price of the company's common stock. The benefit and costs of a delayed equity instrument for both corporations and investors is examined, as well as issues regarding security pricing in different financial markets.

Industry: Manufacturing
Issues: Securities; Financing; Investment Dealers; Financial Planning
Difficulty: 4 - Undergraduate/MBA


Chapter 10:
Dividend Policy

CHAMPION ROAD MACHINERY
Stephen R. Foerster, Rob Barbara

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

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

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



TORSTAR CORPORATION
Robert W. White, William Jin

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

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

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



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

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

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

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


Chapter 11:
Analyzing Cash Returned to Stockholders

AIR NEW ZEALAND: THE RECAPITALIZATION DECISION (A)
Stephen R. Foerster, Patricia A. McGraw

Product Number: 9B02N017
Publication Date: 11/29/2002
Revision Date: 12/5/2009
Length: 23 pages

Air New Zealand is a national airline faced with a number of important strategic and financial issues. The company's recent acquisition of Ansett Australia had proved to be disastrous and a severe financial drain for Air New Zealand. Key issues facing Air New Zealand include the long-term strategic positioning of the business, and determining anticipated financing needs, the appropriate gearing ratio or capitalization (debt-to-equity) rate, and available sources of financing. A recent research report had summarized two fundamental questions that impacted on the company's stock price and needed to be addressed: Would the New Zealand government relax Air New Zealand's ownership restrictions in order to allow Singapore Airlines to increase its stake from 25 per cent to 49 per cent? If so, would any proposal fix Air New Zealand's balance sheet to allow Air New Zealand and Ansett to once again become viable airline competitors? Supplement to this case is Air New Zealand: The Recapitalization Decision (B), product number 9B02N020.

Teaching Note: 8B02N17 (15 pages)
Industry: Transportation and Warehousing
Issues: Financial Analysis; Financial Management; Financial Strategy; Strategic Change
Difficulty: 4 - Undergraduate/MBA



AIR NEW ZEALAND: THE RECAPITALIZATION DECISION (B)
Stephen R. Foerster, Patricia A. McGraw

Product Number: 9B02N020
Publication Date: 11/29/2002
Revision Date: 12/5/2009
Length: 3 pages

This is a supplement to Air New Zealand: The Recapitalization Decision (A), product 9B02N017. The chairman of Air New Zealand is chairing the company's first annual meeting and is faced with a number of financial and strategic issues that have an impact on the survival of the airline.

Teaching Note: 8B02N17 (15 pages)
Industry: Transportation and Warehousing
Issues: Financial Strategy; Financial Analysis; Strategic Change; Financial Management
Difficulty: 4 - Undergraduate/MBA


Chapter 12:
Valuation: Principles and Practice

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



PHARMEX INDUSTRIES - ACQUISITION OF FORMULEX GROUP OF COMPANIES
James E. Hatch, June Lai

Product Number: 9B02N010
Publication Date: 8/28/2002
Revision Date: 12/5/2009
Length: 18 pages

Pharmex Industries is a high-growth pharmaceutical company that has aggressively expanded through acquisitions of financially sound firms. The chief financial officer must decide if their latest potential acquisition, the privately owned Formulex Group of Companies, is strategically attractive, and he must also determine the value of the company and how to finance the acquisition.

Teaching Note: 8B02N10 (17 pages)
Industry: Manufacturing
Issues: Valuation; Financing; Acquisitions
Difficulty: 4 - Undergraduate/MBA



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

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

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

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



ROGERS COMMUNICATIONS INC. - MACLEAN HUNTER LIMITED
Robert W. White, David Robinson

Product Number: 9A96B046
Publication Date: 7/26/1996
Revision Date: 2/9/2010
Length: 22 pages

On Wednesday, February 2, 1994, Ted Rogers, president and CEO of Rogers Communications (RCI), announced that a strategic merger was being sought with Maclean Hunter Limited (MHL). Over the course of the last several weeks, a private company controlled by Mr. Rogers had purchased a block of stock representing approximately 8 percent of the shares held by the public. The focus of the case is to formulate a presentation to RCI's board of directors, which discusses the price, strategy and terms of a planned offer to acquire all remaining MHL shares.

Teaching Note: 8A96B46 (267 KB)
Industry: Information, Media & Telecommunications
Issues: Mergers & Acquisitions; Strategic Planning; Stock Tenders; Valuation
Difficulty: 4 - Undergraduate/MBA



SECOND CUP
David C. Shaw, Anna Supera-Kuc, Bill Washington

Product Number: 9A94B029
Publication Date: 1/21/1995
Revision Date: 2/22/2010
Length: 22 pages

Second Cup, the largest chain of specialty coffee stores in Canada, wants to raise money through an initial public offering in order to pay off the company's long-term debt and take advantage of growth opportunities. Nesbitt Thomson, the investment dealer working on the initial public offering, must decide what the company is worth and how many shares to issue in order to raise $14 million.

Teaching Note: 8A94B29 (9 pages)
Industry: Accommodation & Food Services
Issues: Valuation; Initial Public Offerings
Difficulty: 4 - Undergraduate/MBA