You are on page 1of 6




Deutsche Brauerie

A director of small German brewery must prepare to vote on three issues: 1. approval of financial
plan for 1993, 2. quarterly dividend declaration, 3. incentive compensation plan.

1. What accounts for Deutsche’s rapid growth in recent years? What policy choices account
for this success?

2. What is Deutsche’s credit policy toward its distributors in Ukraine? Why is it different from
the policy toward its other distributors? Is the company’s credit policy appropriate? Is it
profitable? If not, how to change it?

3. Why does this firm need increasing amounts of bank debt?

4. As a member of BoD, how would you vote on:

o The proposed raise for Oleg Pinchuk
o The quarterly dividend declaration of €698,000.
o Adoption of the financial plan for 2001?

Spreadsheet file: Available

Donaldson, Lufkin & Jenrette 1995 (Abridged)

1. Why is Equitable considering selling an interest in DLJ?

2. What are the relative advantages and disadvantages of carve-outs, spin-offs and
divestiture through cash sale?

3. What is your estimate of DLJ's fair value per share? In answering this question, please
draw upon as many valuation approaches as you can. Give special attention to the
valuation multiples of DLJ’s peers. Who are these peers? Why do they qualify as peers?

4. At what price should DLJ be offered? Think carefully about your answer here. The
offering price need not be identical to your answer to question 3. If answers to 3 and 4
differ, please prepare to explain why.

Paginas Amarelas

1. What is the valuation problem here? In what currency are the cash flows denominated?
In what currency should the discount rate be denominated?

2. In this case, why doesn’t J.P. Morgan discount local cash flows at a local required rate of
return? In fact, why not use that approach generally?

3. To complete the estimation ofr a required rate of return, what other effects should be
incorporated into our standard WACC and capital asset pricing formulas?
4. Estimate the required rate of return for the cash flows originating in Argentina, Brazil, and

5. Estimate a long-term perpetual growth rate for the businesses in Argentina, Brazil, and

6. Based on your answer to questions 4 and 5, and referring to Exhibits 2, 3, and 4, what is
a reasonable range of value for Brasil Investimentos’ “yellow pages” business? What key
assumptions underlie your suggested value range?

Spreadsheet file: Available

Eastboro Machine Tools

1. In theory, to fund an increased dividend payout, a firm might invest less, borrow more, or
issue more stock. Which of these three elements is Eastboro management willing to vary
and which elements remain fixed as a matter of policy?

2. What happens to Eastboro’s financing needs and unused debt capacity if

o No dividends are paid
o A 20 percent payout is pursued
o A 40 percent payout is pursued
o A residual payout policy is pursued

3. Note that case Exhibit 8 presents an estimate of the amount of borrowing needed.
Assume that maximum debt capacity is, as a matter of policy, 40 percent of book value of

4. How might Eastboro’s various providers of capital, such as stock holders and creditors,
react if Eastboro declares a dividend in 2001?

5. What are the arguments for and against the zero payout, 40% payout and residual
payout policies? What should Jennifer Campbell recommend to the board of directors
with regard to a long-run dividend payout policy for Eastboro?

6. Should Campbell recommend the corporate-image advertising campaign and corporate

name change to the directors? Do the advertising and name change have any bearing on
the dividend policy issue?

Spreadsheet file: Available

Ben & Jerry’s Homemade

1. How has Ben & Jerry’s fulfilled its mission statement?

2. How did Ben & Jerry’s become a takeover target?

3. What might Ben & Jerry’s be worth if its mission statement was purely economic?

4. Should Morgan support a takeover? If so, which offer should he recommend? If not, what
are the wealth implications for Ben & Jerry’s shareholder?

Spreadsheet file: None


1. What are the main objectives of the debt policy that Ralph Norwood must recommend to
Polaroid.s board of directors?

2. What financing requirements do you foresee for the firm in the coming years? What are
the risks associated with Polaroid.s business and strategy? In your view, what firms are
Polaroid.s peer firms?

3. Drawing on the financial ratios in case Exhibit 9, how much debt could Polaroid borrow at
each rating level? What EBIT coverage ratios would result from the borrowings implied by
each rating category?

4. Using Hudson Guaranty.s estimates of the costs of debt and equity in case Exhibit 11,
which rating category has the lowest overall cost of funds? Do you agree with Hudson
Guaranty_s view that equity investors are indifferent to the increases in financial risk
across the investment grade debt categories?

5. Is Polaroid.s current maturity structure of debt appropriate? Why or why not?

6. What should Ralph Norwood recommend regarding:

• the target bond rating;
• the level of flexibility or reserves
• the mix of debt and equity;
• the maturity structure of debt;

7. and any other issues you believe should be brought to the attention of the CEO and

Corning Inc. Zero Coupon

1. Why do you suppose Corning is issuing convertible bonds and concurrently offering
common stock? Prepare to contrast the advantages of convertible bonds versus straight
debt and common equity.

2. What kinds of insights do the descriptive ratios in case Exhibit 5 give you?

3. Please value the convertible bond.

4. In valuing the call option, does Coopers need to adjust the stock price for dividends?

5. What should Coopers use as her assumption for volatility? Check the sensitivity of your
call-option value to variations in the volatility assumption. Is the call-option value highly
sensitive to volatility? Why is volatility so important?

6. What does it mean to force conversion? Under what circumstances would Corning
attempt to force conversion?

7. Should Julianna Coopers invest in this bond offering?

Spreadsheet file: NA
Repsol’s Acquistion of YPF

1. How significant are the expected synergies and restructuring effects? Please prepare and
estimate of these values.

2. Assess the price that Cortina proposes to offer to YPF shareholders. At $44.78 per share,
would Repsol underpay, overpay, or just offer a fair price?

3. Assess the current pricing of Repsol shares in the market. Is Repsol undervalued,
overvalued or just fairly valued in the global equity markets at this time? Is now a good
time to issue Repsol shares?

4. Compare the relative advantages and disadvantages of offering to the shareholders of

YPF either (a) cash or (b) shares of Repsol. If you were a shareholder in YPF, which form
of consideration would be more attractive (assuming that the amount of consideration
would be constant $44.78 per share)?

5. Whether or not you favor a cash-based offer for YPF, compare the relative advantages
and disadvantages of the (a) all-debt financed cash offer, (b) all-equity financed cash
offer, and (c) blended financing of debt, preferred stock, and equity. How significant are
the variations in default risk in the assessment of the financing alternatives (see case
Exhibit 10)?

6. What course of action would you recommend that Alofonso Cortina adopt regarding the
form of payment and financing for the tender offer for YPF? On what “key bets” does your
recommendation depend?

7. In general, what is the influence of deal financing on other aspects of M&A deal design?

Spreadsheet file: Available

Palamon Capital Partners

1. What is private equity investing? Who participates in it and why? How is Palamon
positioned in the industry?

2. How does private equity investing compare with public market investin? What are the
similarities and differences between the two?

3. Why is Palamon interested in TeamSystem? Does it fit with Palamon’s investment


4. How much is 51 percent of TeamSystem’s common equity worth? Use both a discounted
cash flow and multiple based valuation to justify your recommendation.

5. What complexities do cross-border deals introduce? What are the specific risks of this

6. What should Elson recommend to his partners? Go/no go? If “go”, what nonprice terms
are important? If “no go”, what counterproposal would you make?

Spreadsheet file: Available

1. What is Coleco’s financial condition, and how did it come about?

2. At this point, who are the significant players in any potential outcome? What are their

3. What are management’s alternative courses of action? How does each one work?

4. What should Meyer do? How should he persuade his colleagues and board of directors
of the effectiveness of this course of action?

Spreadsheet file: Available: Check Textbook website

Note: All Excel files provided are for your convenience and use if you so wish. You do not have to
strictly use them if you prefer your own spreadsheet files / format instead.