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Instructor: Dr. Hugh Hunter Office: SSE 3405 Phone: 594-6887
Section 1, TH 1800-2040 SS 2512 Sched. 14711
E-mail: firstname.lastname@example.org; email@example.com Office hours: T 1250-1400, 1700-1830 Note: Hours TH 1250-1400, 1700-1745 may change
Prerequisite: BA 665. FIN 617 or some other 2nd course in corporate finance, such as FIN 325, would help. You should have available a good finance text for reference. The best is Brealey-Myers, Principles of Corporate Finance, any addition. Ross, Westerfield, Jaffe, Corporate Finance is also very good. . Web Site: This site contains information pertaining to this course including announcements of assignment or schedule changes case tips, supplemental information and final exam questions. About this class: For an introduction to the case method, see the last page of this syllabus and Note To the Student: How To Study and Discuss Cases in the Bruner book, pp. xxv-xxx. Each case deals with specific finance topics. Case topics are listed along with study questions at the end of the syllabus. We will review these topics sometime before the case presentation. However, if you feel a need to review certain of these topics apart from class assignments, refer to the appropriate chapters in a corporate finance text. Most of our class time will be devoted to discussion of cases and finance topics related to the cases. It is your class, so treat it as such. For the class to be successful, you must work to that end. That means coming each time prepared to engage the assigned material. Not only will lack of effort diminish the quality of the class, it will also diminish your grade. Each week I will call on a few people at random to discuss the case. This does not diminish the importance of volunteering. Written Reports Aim for 3-4 pages per report, typed, double spaced, plus appendices that you deem appropriate. Your grade is not based on page count. In your report, identify the primary problem – the question or questions that need answering. In most cases, that is evident. If you are in doubt, take your cues from the discussion questions. Do enough analysis to reach and support your conclusions. Most cases provide the necessary data in usable form, and the more numerically complex cases come with spreadsheets. Don't try to force each case into some sort of template. Each case presents a unique problem and set of conditions. They vary in complexity and require different analytical approaches. Generally the more "strategic" cases are more complex, but require less quantitative analysis. Those that require more number crunching tend to be more targeted – less abstract, and more "tactical" than strategic. In other words, fit your approach to the problem. Reports will be due at the end of the class period. If you miss class, arrange to get your report to me on the assigned day. I will send your grades and a written critique via email. Text and Supplements Bruner, Case Studies in Finance, 4th. Higgins, Analysis for Financial Management, 7th. A computer spreadsheet program such as Excel. Access to the web to search out information on companies, industries and the macroeconomic setting for the cases. Case spreadsheets are available on the text web site, or I will copy them for you if you give me a formatted HD floppy. Readings 1. Bruner, “Best Practices in Estimating the Cost of Capital,” Case 12 (text) 2. Lessard, “Incorporating Country Risk in the Valuation of Offshore Projects,” Journal of Applied Corporate Finance (Fall 1996).
class discussions and the cases themselves. 8 Paginas Amarelas TN1. Schedule This schedule may change slightly as the class progresses. 3 Reading 1 Supplemental reading Higgins chap 7 Higgins chap.” Case 29 (text) 7.69 D Within these ranges. 2 Higgins chap.” Journal of Applied Corporate Finance (Fall 1996). 4. capital structure. "Capital Rationing Decisions of Fortune 500 Firms: A Survey. “Structuring Corporate Financial Policy. Firms: 1997 vs." Financial Practice and Education (Spring 1999). 5.100 A 70 . risk.to course. TN2 Readings 2. "Cost of Capital Techniques Used by Major U. Written reports (8 x 6%) 48% Class participation 32% Final exam 20% You will receive a numerical grade (0-100) for all of your work. Mukherjee. Questions are drawn from assigned text chapters. The final exam will consist of about 5 of the questions posted on my web site. Espinoza. Godfrey. 1980. 6. Hingorani. Last day to add/drop.3. I will assign (+) and (-) grades. “A Practical Approach to Calculating Costs of Equity for Investments in Emerging Markets. Date Sep 4 Sep 11 Topic Assignment Intro. Bruner.79 C <60 F 80 – 89 B 60 . cost of capital Lecture/discussion: acquisitions. "Diamond Chemicals Supplement 2" Grading We will be discussing twelve (12) cases this semester. case method Lecture/discussion: valuation.S. Vandenberg. readings. takeovers Lecture/discussion: financial analysis Lecture/discussion: financial forecasting Sep 18 Case 4: Ben & Jerry's Homemade Lecture/discussion: estimating cost of capital Lecture/discussion: debt restructuring Case 8: Padgett Paper Products Lecture/discussion: capital budgeting Case 10: Deutsche Braurei Lecture/discussion: risk analysis Case 13: Nike Lecture/discussion: valuing cross-border investments Lecture/discussion: Country risk. emerging markets Case 15: Teletech Corporation Lecture/discussion: capital rationing Lecture/discussion: cost of capital in practice Ben & Jerry's TN1 Supplemental reading Higgins chap. I will use the standard conversion to assign a final letter grade for the course: 90 . Sept 22. You will turn in written reports on any eight (8) cases.. 3 Euroland Foods TN1 Reading 5 Reading 4 2 Sep 25 Oct 2 Oct 9 Oct 16 ." Financial Practice and Education (Winter 2000). Gitman.
What might Ben & Jerry's be worth if its mission were purely economic? 4. 9 Higgins chap 6 Reading 6 Oct 30 Nov 6 Nov 13 Nov 20 Dec 4 Dec 11 case 26: eBay (A). TN3 Higgins chap. The proposed raise for Oleg Pinchuk? b. Higgins 2 Padgett Paper Products [financial analysis. what are the wealth implications for Ben & Jerry's shareholders? Teaching note 1. Note: eBay (B) will be distributed for class discussion. 5 Higgins chap. As a member of the board of directors. seek to structure Padgett’s loan on a “more orderly basis?” 3. Why does this profitable firm need increasing amounts of bank debt? 4.000? c. valuation.Assign Euroland Teams Oct 23 case 16: Paginas Amarelas Lecture/discussion: real options Case 22: Euroland Foods Lecture/discussion: initial public offerings case 19: Diamond Chemicals (A) Lecture/discussion: valuation & restructuring Case 20: Diamond Chemicals (B) Lecture/discussion: capital structure Diamond Chemicals Supp. Why does Padgett need a loan? How fast can Padgett repay the loan? 4. What is Deutsche Brauerei’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. final Study Questions and Suggested Readings These are general guidelines for approaching the case. What accounts for Deutsche Brauerei’s rapid growth in recent years? Specifically. As a banker. how would you evaluate Padgett’s strategy and financial performance to date? 2. Dec 18. How has Ben & Jerry's fulfilled its mission statement? 2. How did Ben & Jerry's become a takeover target? 3. the banker. takeover] 1. how would you vote on: a. Lecture/discussion: private equity valuation Supplemental reading case 32: Rosario Acero case 41: Palamon Capital Partners review for final Thursday. what policy choices account for this success? 2. debt restructuring] 1. Ben & Jerry's Homemade [performance. 2 Supplemental reading eBay TN1. 1900-2100. Adoption of the financial plan for 2001? 3 . Should Morgan support a takeover? If so. Why should Francis Libris.. what arguments would you offer to the board of directors in its defense? 3. What should Libris propose as terms for the new loan structure? Higgins 3 Deutsche Brauerei [financial analysis. which offer should be recommended? If not. Do not confine your analysis or attention to these questions. The quarterly dividend declaration of Є698. financial policy] 1. how would you change it? If so.
case19. How does the choice of constant versus risk-adjusted rates affect the evaluation of Teletech's two segments? What are the implications for Teletech's resource allocation strategy? 4. Estimate required rates of return for the cash flows originating in Argentina. should Lucy Morris ask Frank Greystock to make in his discounted-cash-flow analysis? Why? What should Morris be prepared to say to the transport division. and 4 of the case.A. behavioral] 1. 2. Reading 1 Teletech Corporation [risk adjusted discount rate] 1. capital rationing. what should Kimi Ford recommend regarding an investment in Nike? Higgins 8. Has Products and Systems destroyed value? Cite evidence to support your answer. 6. Based on your answers to questions 4 and 5. 5. Should Morris continue to promote the project for funding? Higgins 8. Interpret Rick Phillips's graph (Fig. case22. Higgins 7. Estimate segment WACCs for Teletech (see worksheet in case Ex. Rank the 11 proposals on the basis of purely economic considerations. why doesn’t J. To complete the estimation of a required rate of return. Will all of the measures rank the projects identically? Why or why not? 2. case10. the dividend discount model and the earnings capitalization model. What assumptions did you use? 3.P. why not use that approach generally? 3. Brazil and Chile. (A) [capital budgeting] 1. How attractive is the Merseyside project? By what criteria? 3. What changes. if any. risk assessment. In this case. what is a reasonable range of value for Brasil Investimentos’ “yellow pages” business? What key assumptions underlie your suggested value range? Teaching notes 1.Reading 1. Is Helen Buono correct that value would be destroyed if all the firm's assets were redeployed into telecommunications? Why.1). Readings 2. 4. How does Teletech currently use the hurdle rate? 2. why not? Support your view with a numerical example. her assistant plant manager. emerging markets] 1. 5. What is WACC and why is it important to estimate a firm's cost of capital? 2. What is the valuation problem here? In what currency are the cash flows denominated? In what currency should the discount rate be denominated? Be sure you understand exhibits 1. What are the advantages and disadvantages of each? 5. 3. 2. Prepare to discuss the strengths and weaknesses of the various measures of investment attractiveness as used by Euroland foods. and referring to exhibits 2.xls Diamond Chemicals. 2. Estimate a long-term perpetual growth rate for the businesses in Argentina.xls Diamond Chemicals.xls Nike [cost of capital] 1. How should Teletech respond to Victor Yossarian? Higgins 8. and the analyst from the treasury staff? 2. Then rank them a second time based on any considerations you consider to be important. Calculate the costs of equity using CAPM. [capital budgeting. why not? 5. Morgan discount local cash flows at a local required rate of return? In fact. 3. calculate your own WACC for Nike and be ready to justify your assumptions. Are the rankings identical? Why or why not? 3. and 4. If you do not agree with Joanna's analysis. 7. 3. Teaching note 1. what other effects should we incorporate into our standard weighted average cost of capital (WACC) and capital asset pricing model formulas? 4. Brazil and Chile. (B) [capital budgeting] 4 . Which set of projects should Wilhelmina Verdin recommend to the board of Euroland as the capital budget for 2001? Readings 4. Do you agree with Joanna Cohen's WACC calculation? Why or why not? 3. Do you agree that "all money is green"? Why. 6. case15. case16. the director of sales.xls Euroland Foods S.xls Paginas Amarelas [cost of capital.2).
9. your approach to the problems and solutions are affected by who you are. behavior of teammates. rational solution. forcing compromise solutions. How does the current market condition affect eBay's decision? Should eBay go ahead with the offering? Teaching notes 1. You are thrust into a role. There is another human aspect to cases. Many cases are ambiguous.00 per share for the equity issue be fair? 6. What factors other than valuation should be considered in this investment? 4.. What are the differences in the ways Elizabeth Eustace and Lucy Morris have advocated their respective projects? How might these differences in style affect the outcome of the decision? 5. there are a number of problems and issues that must be dealt with simultaneously. Which course of action should Este adopt? State your reasons. As in real life. The human element sometimes confounds the most logical. It is this complexity that leads individuals to different conclusions. just as in business. Quite often. How much is a 51 percent stake in TeamSystem worth? 2b.xls Palamon Capital Partners [valuation. Which project should James Fawn propose to the chief executive officer and board of directors? Supplemental Note 2 eBay (A) [IPO. restructuring] 1.xls Introduction to the Case Method Cases are the closest possible classroom approximations of actual business situations. Would an offering price of $9. What cash flows did you use? How did you estimate cash flows? 2c. While no 5 . Also. How should Bengier prepare to negotiate an offer price with the underwriters? What is an appropriate price? Should he be concerned about the IPO pricing patterns in case Ex. Problems are sometimes hidden – not obvious. Why is Pablo Este considering obtaining long-term capital? 2. many cases are complex. How will the two financing alternatives affect the performance of the firm? Examine case Exhibits 6-11. lack of information. solving one problem only exacerbates another. meaning that you will never have enough information. First. private equity] 1. Why does such an attractive investment opportunity exist? Case41. principals in the case are part of the problem.1. you cannot ignore human foibles and follies. What should Louis Elson do? 5. How do the two projects compare on the basis of Diamond Chemicals’ investment criteria? What might account for differences in rankings? 3. market timing. or any number of other stakeholders in the company. executive or business owner. Information is costly and you must weigh the potential benefits against the cost of added information. Higgins 5 Rosario Acero [capital structure. What multiples did you use? How did you arrive at these multiples? 3. and with those who are not persuaded by your solutions. What are the associated costs and benefits of eBay going public 2. From Rosario's standpoint. Is it possible to quantify the value of managerial flexibility associated with the Merseyside project? How. valuation] 1. you will at times experience frustration with seemingly insoluble analytical problems. 9? 3. staff assistant. and vital information is not easily available. There are a number of parallels between cases and situations that you are likely to encounter in business. Higgins 6. What primary risks does the firm face? Considering normal downside risk can the company continue to service the debt? 4. that is. As in actual business. 3. Why are the Merseyside and Rotterdam projects mutually exclusive? 2. Should Palamon invest in TeamSystem? Why or why not? 2a. Often. case32. if at all. Successful completion of a case class will arm you with a set of skills that should serve you well in business. 3. Reading 6. It may be as a consultant. does this flexibility affect the economic attractiveness of the project? 4. are the terms are the terms of the notes-and-warrants package competitive? Are they attractive? 5.
identify the problems. Persuade others that your solution is the best possible. Often this requires you to choose among alternative solutions. be prepared to defend your position. Finally. the following process works well for most. First. Develop a solution and plan of action. 6 .single approach fits all cases. Bring the appropriate analytical tools to bear.
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