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Ross-Westerfield-Jaffe: Corporate Finance, Ninth Edition
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 Front Matter
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| 2 pp.
| Preface
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| I. Overview
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| 19 pp.
| 1. Introduction to Corporate Finance
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| 6 pp.
| Case — Clarkson Lumber Co.
Author(s): Piper, Thomas R.
Publication Date: 09/19/1996 Revision Date: 10/29/1996
Product Type: Case (Field)
Product Description: The owner of a rapidly growing retail lumber company is considering the financial implications of continued rapid growth. The magnitude of the company’s future financing requirements must be assessed in the context of the company‘s access to bank finance and/or equity finance. Teaching Purpose: Development of skills in financial analysis, financial forecasting, and financial planning. A rewritten version of an earlier case.
HBS Number: 9-297-028
Geographic Setting: United States Industry Setting: retail lumber
Company Size: small Number of Employees: 11 Gross Revenues: $3 million revenues
Event Year Start: 1991 Event Year End: 1991
Subjects: Financial analysis; Financial planning; Forecasting; Loan evaluation
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-297-076), 10p, by Thomas R. Piper
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| 24 pp.
| 2. Financial Statements and Cash Flow
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| 10 pp.
| Case — Kmart Corp.
Noe, Christopher F.
Describes a situation in which a company (Kmart) refinances a portion of its debt. Used to illustrate how the asset and liability sides of the balance sheet are linked.
HBS Number: 9-199-017 Type: Case (Library)
Publication Date: 10/2/1998 Revision Date: 5/31/1999
Geographic Setting: United States Industry Setting: retail
Company Size: large Number of Employees: 200,000 Gross Revenues: $30 billion revenues
Event Year Start: 1995 Event Year End: 1996
Subjects: Accounting procedures; Assets; Balance sheets; Debt management; Discount department stores; Liability; Retail stores
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| 8 pp.
| Case — Statements of Cash Flows: Three Examples
Author(s): Bruns, William J., Jr.; Hertenstein, Julie H.
Publication Date: 02/03/1993 Revision Date: 11/03/1998
Product Type: Case (Library)
HBS Number: 9-193-103
Event Year Start: 1989 Event Year End: 1991
Subjects: Accounting policies; Accounting procedures; Cash flow; Financial analysis; Financial reporting; Securities analysis
Academic Discipline: Accounting & control
Supplementary Materials: Teaching Note, (5-193-173), 11p, by William J. Bruns Jr., Julie H. Hertenstein
Product Description: This case introduces the statement of cash flow through three examples of multi-year statements of cash flows from three unidentified companies.
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| 3 pp.
| Case — Chemalite, Inc.
Author(s): Wilson, David A.
Publication Date: 10/01/1976 Revision Date: 12/19/1996
Product Type: Case (Gen Exp)
Product Description: A chemical engineer who has set up a company to manufacture and market one of his inventions is trying to prepare his state of the corporation report. This case is designed to serve as a vehicle to introduce students to basic bookkeeping and accounting functions. May be used with: (9-195-130) Chemalite, Inc. (B): Cash Flow Analysis.
HBS Number: 9-177-078
Geographic Setting: Unspecified Industry Setting: chemicals
Event Year Start: 1974 Event Year End: 1974
Subjects: Accounting procedures; Financial reporting; Valuation
Academic Discipline: Accounting & control
Supplementary Materials: Teaching Note, (5-188-021), 17p, by Charles J. Christenson; Teaching Note, (5-193-063), 12p, by William J. Bruns Jr.
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| 4 pp.
| Case — Butler Lumber Co.
Author(s): Piper, Thomas R.
Publication Date: 10/31/1991 Revision Date: 01/04/2002
Product Type: Case (Field)
Product Description: The Butler Lumber Co. is faced with a need for increased bank financing due to its rapid sales growth and low profitability. Students must determine the reasons for the rising bank borrowing, estimate the amount of borrowing needed, and assess the attractiveness of the loan to the bank. A rewritten version of an earlier case. Allows students to practice ratio analysis, financial forecasting, and evaluating financing alternatives.
HBS Number: 9-292-013
Geographic Setting: United States Industry Setting: retail lumber
Company Size: small Number of Employees: 11 Gross Revenues: $3 million revenues
Event Year Start: 1991 Event Year End: 1991
Subjects: Financial analysis; Financial planning; Forecasting; Loan evaluation
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-292-014), 9p, by Thomas R. Piper
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| 6 pp.
| Case — Crystal Meadows of Tahoe, Inc.
Bruns, William J., Jr.
An introductory case in cash flow analysis and the preparation of statements of cash flows. Based on the 1991 income statement and balance sheet at a ski resort company, the case provides additional information which allows a student to prepare both a direct and an indirect statement of cash flows. A rewritten version of an earlier case.
HBS Number: 9-192-150 Type: Case (Library)
Publication Date: 6/23/1992 Revision Date: 6/28/1993
Geographic Setting: California, Utah Industry Setting: skiing
Company Size: small Gross Revenues: $20 million revenues
Event Year Start: 1991 Event Year End: 1991
Subjects: Accounting policies; Cash flow; Management accounting; Recreation
Supplementary Materials: Teaching Note, (5-193-128), 6p, by William J. Bruns Jr.
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| 43 pp.
| 3. Financial Statements Analysis and Financial Models
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| 4 pp.
| Article — Investment Analysis Exercises
Author(s): Crane, Dwight B.; Joseph, Penny
Publication Date: 02/04/1999 Revision Date: 03/12/1999
Product Type: Exercise
HBS Number: 9-299-049
Subjects: Financial analysis; Present value
Academic Discipline: Finance
Product Description: To teach present value analysis.
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| 31 pp.
| Case — American International Group, Inc.
Froot, Kenneth A.; Nelson, Heidi Suzanne
American International Group, Inc. (AIG), one of the world’s largest and most innovative insurers and financial intermediaries, is thinking about strategy in an era of new competition and Internet distribution. Teaching Purpose: To demonstrate issues associated with a large financial intermediary.
HBS Number: 9-200-026 Type: Case (Field)
Publication Date: 12/6/1999
Geographic Setting: United States Industry Setting: insurance Gross Revenues: $30 billion revenues
Event Year Start: 1999 Event Year End: 1999
Subjects: Capital markets; Corporate strategy; Electronic commerce; Insurance; Internet
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| 28 pp.
| Case — Fremont Financial Corp.
Author(s): Sirri, Erik; Zeitung, Ann
Publication Date: 02/16/1994
Product Type: Case (Field)
Product Description: Highlights the relationship between financial markets and financial intermediaries in the capital raising process. Fremont Financial is an asset-based lender to middle market companies. The firm has three options to raise capital to finance its loan portfolio. Fremont can: 1) extend its existing bank line of credit, 2) issue commercial paper through a special purpose conduit, or 3) securitize and sell the loan portfolio into the capital markets. Emphasizes the problems and potential solutions to asymmetric information and moral hazard problems that are endemic to financial intermediation. Teaching Purpose: Can be used to highlight the differences between financial markets and financial intermediaries in the modern capital raising process.
HBS Number: 9-294-054
Geographic Setting: Los Angeles, CA Industry Setting: banking Number of Employees: 100 Gross Revenues: $25 million revenues
Event Year Start: 1992 Event Year End: 1992
Subjects: Banking; Capital markets; Commercial banking; Commercial credit; Financial services; Small business
Academic Discipline: Finance
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| 13 pp.
| Case — Be Our Guest, Inc.
Crane, Dwight B.; Joseph, Penny
Be Our Guest is a rapidly growing equipment rental company with substantial seasonality in its revenues and profits. In the spring of 1998, the senior management team is reviewing its financial plans in preparation for a meeting with the company’s bank. The case provides an opportunity to forecast financial needs and consider the appropriate structure and amount of bank borrowing.
HBS Number: 9-299-001 Type: Case (Field)
Publication Date: 4/5/1999 Revision Date: 9/27/2000
Geographic Setting: Boston, MA Industry Setting: equipment rental Number of Employees: :40 Gross Revenues: $2,650,000 revenues
Event Year Start: 1994 Event Year End: 1997
Subjects: Banking; Financial analysis; Financial planning; Financing; Small business
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| 7 pp.
| Case — Advanced Technologies, Inc.
Author(s): Piper, Thomas R.
Publication Date: 01/12/1999 Revision Date: 06/07/2006
Product Type: Case (Gen Exp)
Product Description: The CEO of a semiconductor equipment manufacturer is assessing the financial forecasts and financing plan prepared by the chief financial officer. Continued rapid growth will create substantial financing pressures, especially if profitability fails to recover and/or if a major, unexpected economic downturn occurs.
HBS Number: 9-299-042
Geographic Setting: United States Industry Setting: Semiconductor industry Gross Revenues: $605 million revenues
Event Year Start: 1997 Event Year End: 1997
Subjects: Debt management; Financial analysis; Financial management; Financial planning
Academic Discipline: Finance
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| 24 pp.
| Case — Vanguard Group, Inc.—1998
Author(s): Perold, Andre F.
Publication Date: 09/10/1998
Product Type: Case (Field)
Product Description: Since the beginning of 1997, Vanguard’s assets under management have increased more than 60% from $240 billion to almost $400 billion, making it second in market share only to Fidelity Investments. Vanguard views this success as another vindication of its low-cost strategy of no-load funds, small expense ratios, candid client communication, high quality service, and predictable performance. But the organization also is mindful of the unprecedented changes occurring in the financial services industry. Financial institutions have been rapidly consolidating, with firms such as Citigroup, UBS, and Merrill Lynch each now holding customer and other assets in excess of a trillion dollars. And technology — especially the Internet -- is dramatically altering the creation, pricing, and delivery of financial services. Vanguard has to carefully consider its future, and faces key decisions such as expanding its range of products and offering asset management services in other countries. Teaching Purpose: To understand the importance of cost savings and service in investment management and the demand for mutual fund products and competition within the mutual fund industry.
HBS Number: 9-299-002
Geographic Setting: PennsylvaniaIndustry Setting: mutual fund
Event Year Start: 1998Event Year End: 1998
Subjects: Financial planning; Investment management; Mutual funds; Service management; Strategic planning
Academic Discipline: Finance
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| II. Valuation and Capital Budgeting
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| 48 pp.
| 4. Discounted Cash Flow Valuation
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| 36 pp.
| 5. Net Present Value and Other Investment Rules
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| 31 pp.
| Case — American International Group, Inc.
Froot, Kenneth A.; Nelson, Heidi Suzanne
American International Group, Inc. (AIG), one of the world’s largest and most innovative insurers and financial intermediaries, is thinking about strategy in an era of new competition and Internet distribution. Teaching Purpose: To demonstrate issues associated with a large financial intermediary.
HBS Number: 9-200-026 Type: Case (Field)
Publication Date: 12/6/1999
Geographic Setting: United States Industry Setting: insurance Gross Revenues: $30 billion revenues
Event Year Start: 1999 Event Year End: 1999
Subjects: Capital markets; Corporate strategy; Electronic commerce; Insurance; Internet
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| 11 pp.
| Case — NetFlix.com, Inc.
Author(s): Mayfield, E. Scott
Publication Date: 09/20/2000 Revision Date: 10/17/2006
Product Type: Case (Field)
HBS Number: 9-201-037
Geographic Setting: Los Gatos, CA Industry Setting: Internet & online services industries; Video industry Company Size: start-up Number of Employees: 270 Gross Revenues: $5 million revenues
Event Year Start: 2000 Event Year End: 2000
Subjects: Cash flow; Electronic commerce; Financial planning; Forecasting; Internet; IPO
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-202-058), 17p, by E. Scott Mayfield
Product Description: The CEO of a successful Internet start-up must decide whether to delay the company’s initial public offering following a significant decline in the NASDAQ market during the spring of 2000. The company‘s CFO is asked to reevaluate the company's projected cash flow needs in light of the new requirement that in order to go public, Internet companies must show positive cash flows within a 12-month horizon. While examining ways to extend the company's working capital, the CFO considers various changes to the company's existing business model, including changes in the company's contractual relationships with both its suppliers and its customers.
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| 7 pp.
| Case — Whirlpool Europe
Author(s): Ruback, Richard S.; Balachandran, Sudhakar; Sesia Jr., Aldo
Publication Date: 11/01/2001 Revision Date: 12/15/2003
Product Type: Case (Field)
Product Description: Presents a capital budgeting problem. Whirlpool Europe is evaluating an investment in an enterprise resource planning (ERP) system that would reorganize the information flow throughout the company. Students derive the cash flows from working capital, sales, and other improvements along with the cost of the investment. Teaching Purpose: Students evaluate the potential investment using a discount cash flow analysis.
HBS Number: 9-202-017
Geographic Setting: ItalyIndustry Setting: home appliances
Event Year Start: 1999Event Year End: 1999
Subjects: Appliances; Capital budgeting; Cash flow; ERP; Europe; Forecasting; Investments; Present value
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-202-124), 16p, by Richard S. Ruback
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| 35 pp.
| 6. Making Capital Investment Decisions
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| 6 pp.
| Case — Investment Analysis and Lockheed Tri Star
Author(s): Edleson, Michael E.
Publication Date: 02/27/1991 Revision Date: 11/17/1993
Product Type: Case (Library)
HBS Number: 9-291-031
Industry Setting: Aerospace industry Company Size: Fortune 500 Gross Revenues: $500 billion market capitalization
Event Year Start: 1968 Event Year End: 1973
Subjects: Capital budgeting; Capital investments; Present value; Project evaluation; Securities analysis
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-291-032), 15p, by Michael E. Edleson
Product Description: A set of five exercises in capital budgeting. Student calculates and compares various decision criteria (including IRR and NPV) for capital investment projects. This is an introductory case, where relevant cash flows are provided, and the focus is on the discounting mechanics and the decision to invest. In addition, one exercise directly probes the link between positive NPV projects, and value added to the shareholders. The final “exercise” is a three page mini-case analyzing Lockheed’s decision to invest in the TriStar L-1011 Airbus project. This drives home the importance of discounting and NPV, and shows the adverse effect of a negative NPV project on shareholder value.
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| 28 pp.
| 7. Risk Analysis, Real Options, and Capital Budgeting
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| 6 pp.
| Article — Capital Budgeting: Discounted Cash Flow Analysis
Piper, Thomas R.
Comprises seven problems that collectively allow students to work through each type of cash flow that is encountered in capital budgeting. The instructor can also address such issues as product cannibalization and real options. Teaching Purpose: An effective introduction to capital budgeting.
HBS Number: 9-298-068 Type: Exercise
Publication Date: 10/30/1997
Revision Date: 6/28/2000
Subjects: Capital budgeting; Cash flow
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| 6 pp.
| Case — Ocean Carriers
Author(s): Stafford, Erik; Chao, Angela; Luchs, Kathl
Publication Date: 09/13/2001 Revision Date: 04/18/2002
Product Type: Case (Field)
Product Description: In January 2001, Mary Linn, VP of finance for Ocean Carriers, a shipping company with offices in New York and Hong Kong, was evaluating a proposed lease of a ship for a three-year period, beginning in early 2003. The customer was eager to finalize the contract to meet his own commitments and offered very attractive terms. No ship in Ocean Carrier’s current fleet met the customer‘s requirements. Mary Linn, therefore, had to decide whether Ocean Carriers should immediately commission a new capsize carrier that would be completed two years hence and could be leased to the customer. Teaching Purpose: Provides the opportunity for students to make a capital budgeting decision. The key pedagogical objective is to develop an understanding of how discounted cash flow analysis can be used to make investment and corporate policy decisions.
HBS Number: 9-202-027
Geographic Setting: New York, Hong Kong Industry Setting: shipping
Event Year Start: 2001 Event Year End: 2001
Subjects: Asia; Capital budgeting; Cash flow; Present value; Sales forecasting; Shipping; Valuation
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-202-029), 7p, by Erik Stafford
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| 7 pp.
| Case — E.I. du Pont de Nemours & Co.: Titanium Dioxide
Author(s): Kester, W. Carl; Glauber, Robert R.; Mulli
Publication Date: 02/24/1984 Revision Date: 02/28/1986
Product Type: Case (Library)
Product Description: Disequilibrium in the $350 million TiO2 market has prompted Du Pont’s Pigments Department to develop two strategies for competing in this market in the future. The growth strategy has a smaller internal rate of return than the alternative strategy due to large capital outlays in early years and positive cash flows arising only in later years. However, it is the more valuable project on a net present value basis for all discount rates less than 21%. Students are faced with the task of converting strategic plans and objectives into free cash flow projections and determining a breakeven discount rate between these mutually exclusive projects. A decision about which strategy to pursue must then be made. Rewritten version of an earlier case by the same author.
HBS Number: 9-284-066
Geographic Setting: United States Industry Setting: chemicals
Company Size: Fortune 500 Gross Revenues: $4 billion assets
Event Year Start: 1972 Event Year End: 1972
Subjects: Capital budgeting; Chemicals; Financial management; Present value; Rates of return; Return on investment; Strategic planning
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-289-005), 10p, by W. Carl Kester
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| 21 pp.
| Case — Note on Valuation in Private Equity Settings
Author(s): Lerner, Joshua; Willinge, John
Publication Date: 10/31/1996 Revision Date: 04/08/2002
Product Type: Note
Product Description: Discusses several ways in which venture-backed firms can be valued, including comparables, net present value, decision-tree analysis, and the “venture capital method.” Teaching Purpose: Provides an introduction to valuation of entrepreneurial firms.
HBS Number: 9-297-050
Subjects: Entrepreneurial finance; Entrepreneurship; Financial analysis; Valuation; Venture capital
Academic Discipline: Finance
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| 6 pp.
| Case — Merck & Co.: Evaluating a Drug Licensing Opportunity
Author(s): Ruback, Richard S.; Krieger, David
Publication Date: 10/30/2000 Revision Date: 03/25/2003
Product Type: Case (Field)
Product Description: Explores the valuation of an opportunity to license a compound before it enters clinical trials. Describes Merck’s decision tree evaluation process. Also provides the information required to evaluate a specific licensing opportunity, including the costs of the three phases of the review process, the revenues if approved, along with the probability of various outcomes. Provides an introduction to decision tree analysis and valuation. Teaching Purpose: Presents the opportunity for students to explore decision tree analysis and risk/reward modeling. The primary pedagogical objective is to learn how to build and use decision trees.
HBS Number: 9-201-023
Industry Setting: pharmaceuticalsCompany Size: Fortune 500Gross Revenues: $33 billion revenues
Event Year Start: 1999Event Year End: 1999
Subjects: Capital budgeting; Decision trees; Investments; Pharmaceuticals; Present value; Valuation
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-202-001), 10p, by Richard S. Ruback, Aldo Sesia Jr.
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| 34 pp.
| 8. Interest Rates and Bond Valuation
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| 6 pp.
| Case — Cougars
Mason, Scott P.; Desai, Mihir
Provides an introduction to zero coupon bonds and stripping coupon bonds. Concerns the relationship between the spot curve, the strip curve, and the coupon curve.
HBS Number: 9-295-006 Type: Case (Library)
Publication Date: 7/12/1994 Revision Date: 9/7/1995
Geographic Setting: Unspecified
Subjects: Bonds; Innovation; Interest rates; Pricing
Supplementary Materials: Teaching Note, (5-295-098), 8p, by Scott P. Mason
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| 24 pp.
| Case — Jupiter Management Co.
Moore, Ronald W.
The manager of a small company growth fund considers relative merits of investing in a company’s convertible debt versus its common.
HBS Number: 9-292-107 Type: Case (Gen Exp)
Publication Date: 2/4/1992 Revision Date: 2/28/1996
Geographic Setting: United States Industry Setting: money management
Company Size: small
Subjects: Investment management; Mutual funds; Portfolio management
Supplementary Materials: Teaching Note, (5-298-023), 7p, by W. Carl Kester
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| 17 pp.
| Case — Ford Motor Co.’s Value Enhancement Plan (A)
Author(s): Perold, Andre F.
Publication Date: 01/22/2001 Revision Date: 03/28/2002
Product Type: Case (Library)
HBS Number: 9-201-079
Geographic Setting: Dearborn, MI Industry Setting: automobiles Company Size: Fortune 500 Number of Employees: 335,000 Gross Revenues: $162 billion revenues
Event Year Start: 2000 Event Year End: 2000
Subjects: Automobile industry; Capital structure; Cash flow; Dividends; Financial strategy; Stockholders; Stocks; Taxation
Academic Discipline: Finance
Supplementary Materials: Supplement (Library), (9-202-103), 7p, by Andre F. Perold, Joshua Musher; Teaching Note, (5-204-116), 13p, by Andre F. Perold, Peter Tufano
Product Description: In April 2000, Ford Motor Co. announced a shareholder Value Enhancement Plan (VEP) to significantly recapitalize the firm’s ownership structure. Ford had accumulated $23 billion in cash reserves and under the VEP would return as much as $10 billion of this cash to shareholders. In exchange for each share currently held, the plan would give stockholders one new share plus the choice of receiving $20 either in cash or additional new Ford common shares. Shareholders electing to receive cash would be taxed on these distributions at capital gain rates. Among other things, the plan provided a means for the Ford family to obtain liquidity without having to dilute their 40% voting interest (even though they own only 5% of the shares outstanding.) Students must wrestle with the following questions: Why was Ford proposing this transaction instead of a traditional share repurchase or a cash dividend? How did the interests of the Ford family factor into this decision, and what did the transaction imply about the future involvement of the family in the company? Why was Ford distributing such a significant amount of cash at this particular point in time? Did the distribution signa
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| 9 pp.
| Case — Arbitrage in the Government Bond Market?
Author(s): Edleson, Michael E.; Tufano, Peter
Publication Date: 01/08/1993 Revision Date: 06/28/1995
Product Type: Case (Library)
Product Description: Documents a pricing anomaly in the large and liquid treasury bond market. The prices of callable treasury bonds seem to be inconsistent with the prices of noncallable treasuries and an arbitrage opportunity appears to exist. Permits instructors to introduce the treasury market, the concept of creating synthetic instruments, principles of arbitrage, and institutional frictions in the bond markets.
HBS Number: 9-293-093
Geographic Setting: United States Industry Setting: money management
Event Year Start: 1991 Event Year End: 1991
Subjects: Bonds; Capital markets; Securities analysis; Valuation
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-296-059), 10p, by Peter Tufano
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| 19 pp.
| Case — Global Equity Markets: The Case of Royal Dutch and Shell
Author(s): Froot, Kenneth A.; Perold, Andre F.
Publication Date: 03/04/1996 Revision Date: 04/27/2006
Product Type: Case (Library)
Product Description: Royal Dutch and Shell common stocks are securities with linked cash flow, so that the ratio of their stock prices should be fixed. In fact, the ratio is highly variable, moving with the markets where the securities are intensively traded. Royal Dutch trades more actively in the Netherlands and U.S. markets, whereas Shell trades more actively in the United States. The result is that the Royal Dutch/Shell relative price moves positively with the Netherlands and U.S. markets and negatively with the U.K. market. The ability to arbitrage these disparities and their causes are major case focal points.
HBS Number: 9-296-077
Industry Setting: Financial services
Subjects: Capital markets; International finance; Valuation
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-201-093), 12p, by Kenneth A. Froot
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| 32 pp.
| 9. Stock Valuation
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| 32 pp.
| Case — Between a Rock and a Hard Place: Valuation and Distribution in Private Equity
Author(s): Hardymon, G. Felda; Lerner, Josh; Leamon, Ann
Publication Date: 02/25/2003 Revision Date: 02/21/2008
Product Type: Note
HBS Number: 803161
Subjects: Distribution; Entrepreneurial finance; Stocks; Valuation; Venture capital
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (805049), 12p, by Josh Lerner, G. Felda Hardymon, Ann Leamon
Product Description: Introduces the issues attendant to valuing privately held portfolios and distributing thinly traded stock. Although they have existed since the beginning of the formal venture capital industry, they have received increasing amounts of attention as the money invested in private equity has grown. Presents the perspectives of the many participants in the industry.
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| 11 pp.
| Technical Note — Option Valuation and Dividend Payments
Author(s): Harris, Robert S.; Conroy, Robert M.
Darden ID: UVA-F-1523
Published: 2/5/2007
Copyright Year: 2007
Subject Area: Finance
Keywords: options, Black-Scholes option-pricing model, dividends, valuation
Abstract: This note shows how dividend payments affect option values owing to the effects of dividend payments on share price and resulting investor behavior. In addition to discussing the underlying logic, the note shows how to value options for dividend-paying stocks by adapting the Black-Scholes option-pricing model. The note addresses issues of early exercise and the underlying incentives of investors who own call or put options.
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| 21 pp.
| Case — Capital Market Myopia
Author(s): Sahlman, William A.; Stevenson, Howard H.
Publication Date: 08/12/1987 Revision Date: 12/31/1998
Product Type: Note
Product Description: Focuses attention on a phenomenon we call capital market myopia, a situation in which participants in the capital markets ignore the logical implications of their individual investment decisions. Viewed in isolation, each decision seems to make sense. When taken together, however, they are a prescription for disaster. Capital market myopia leads to over-funding of industries and unsustainable levels of valuation in the stock market. Uses the Winchester Disk industry to elucidate the phenomenon. Argues that capital market participants should have seen the problem coming. They should have known that valuation levels were absurd, based in large part on the greater fool theory. The data necessary to anticipate the problem were readily available before the industry shakeout began and stock prices collapsed. Offers some simple lessons to help investors and entrepreneurs avoid charter membership in the greater fool club.
HBS Number: 9-288-005
Subjects: Capital markets; Entrepreneurial finance; Entrepreneurship; Stock offerings; Valuation; Venture capital
Academic Discipline: Entrepreneurship
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| III. Risk
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| 29 pp.
| 10. Risk and Return: Lessons from Market History
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| 42 pp.
| 11. Return and Risk: The Capital Asset Pricing Model (CAPM)
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| 2 pp.
| Case — Concordia Electronic Systems Test
Piper, Thomas R.
The management of an electronics company is attempting to decide whether to use a single hurdle rate for all projects or to move to a system of different hurdle rates for each of its two divisions. The divisions differ substantially in terms of risk and seem to have substantially different costs of capital. Teaching Purpose: Estimation of cost of capital based on the capital asset pricing model.
HBS Number: 9-298-115 Type: Case (Library)
Publication Date: 3/5/1998
Geographic Setting: United States Industry Setting: electronics
Event Year Start: 1996 Event Year End: 1996
Subjects: Capital costs; Electronics; Models; Risk assessment; Risk management; Valuation
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| 12 pp.
| Case — Lex Service PLC: Cost of Capital
Author(s): Kester, W. Carl; Backstrand, Kendall
Publication Date: 04/26/1996 Revision Date: 03/13/1998
Product Type: Case (Field)
Product Description: The Lex Service company has grown to become a large multidivisional company with a substantial capital budget. In 1993, the board was reviewing its capital budgeting procedures. Specifically, it sought to determine the company’s cost of capital and whether it should use different hurdle rates for different divisions. Teaching Purpose: To introduce practical techniques for estimating the cost of equity using CAPM, and designing discount rates appropriate for businesses of different risk.
HBS Number: 9-296-003
Geographic Setting: United Kingdom Industry Setting: automotive Gross Revenues: $2.0 billion revenues
Event Year Start: 1993 Event Year End: 1993
Subjects: Automotive supplies; Capital budgeting; Capital costs; United Kingdom
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-204-158), 11p, by W. Carl Kester
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| 10 pp.
| Case — Marriott Corp.: The Cost of Capital (Abridged)
Author(s): Ruback, Richard S.
Publication Date: 03/24/1989 Revision Date: 04/01/1998
Product Type: Case (Field)
Product Description: Gives students the opportunity to explore how a company uses the Capital Asset Pricing Model (CAPM) to compute the cost of capital for each of its divisions. The use of Weighted Average Cost of Capital (WACC) formula and the mechanics of applying it are stressed.
HBS Number: 9-289-047
Geographic Setting: Unspecified Industry Setting: hotels and restaurants
Company Size: large
Event Year Start: 1988 Event Year End: 1988
Subjects: Capital costs; Hotels & motels
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-298-081), 18p, by Richard S. Ruback
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| 24 pp.
| Case — Cost of Capital at Ameritrade
Author(s): Mitchell, Mark; Stafford, Erik
Publication Date: 10/31/2000 Revision Date: 04/26/2001
Product Type: Case (Field)
HBS Number: 9-201-046
Geographic Setting: Omaha, NE Industry Setting: brokerage Number of Employees: 500 Gross Revenues: $77 million revenues
Event Year Start: 1997 Event Year End: 1997
Subjects: Capital budgeting; Capital costs; Capital markets; Financial services; Holding companies; Regression analysis; Valuation
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-201-123), 10p, by Mark Mitchell, Erik Stafford
Product Description: Ameritrade Holding Corp. is planning large marketing and technology investments to improve the company’s competitive position in deep-discount brokerage by taking advantage of emerging economies of scale. In order to evaluate whether the strategy would generate sufficient future cash flows to merit the investment, Joe Ricketts, chairman and CEO of Ameritrade, would need an estimate of the project‘s cost of capital. There is considerable disagreement as to the correct cost of capital estimate. A research analyst pegs the cost of capital at 12%, the CFO of Ameritrade uses 15%, and some members of Ameritrade management believe that the borrowing rate of 9% is the rate by which to discount the future cash flows expected to result from the project. There is also disagreement as to the type of business that Ameritrade is in. Management insists that Ameritrade is a brokerage firm, whereas some research analysts and managers of other online brokerage firms suggest that Ameritrade is a technology/Internet firm. Teaching Purpose: A two-day case to estimate the cost of capital that Ameritrade should employ in evaluating the proposed large investments in marketing and technology. The lesson plan builds on the prior cases in the Risk & Return module. Uses the capital asset pr
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| 21 pp.
| 12. An Alternative View of Risk and Return: The Arbitrage Pricing Theory
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| 23 pp.
| Case — Long-Term Capital Management, L.P. (A)
Author(s): Perold, Andre F.
Publication Date: 11/05/1999
Product Type: Case (Field)
HBS Number: 9-200-007
Geographic Setting: Connecticut Industry Setting: finance
Event Year Start: 1997 Event Year End: 1998
Subjects: Arbitrage; Capital markets; Efficient markets; Financial institutions; Investment management; Risk management
Academic Discipline: Finance
Supplementary Materials: Supplement (Field), (9-200-008), 1p, by Andre F. Perold
Product Description: Long-Term Capital Management, L.P. (LTCM) was in the business of engaging in trading strategies to exploit market pricing discrepancies. Because the firm employed strategies designed to make money over long horizons — six months to two years or more — it adopted a long-term financing structure designed to allow it to withstand short-term market fluctuations. In many of its trades, the firm was in effect a seller of liquidity. LTCM generally sought to hedge the risk-exposure components of its positions that were not expected to add incremental value to portfolio performance, and to increase the value-added component of its risk exposures by borrowing to increase the size of its positions. The fund’s positions were diversified across many markets. This case is set in September 1997, when, after three and a half years of high investment returns, LTCM‘s fund capital had grown to $6.7 billion. Because of the limitations imposed by available market liquidity, LTCM was considering whether it was a prudent and opportune moment to return capital to investors. Teaching Purpose: Can be used to discuss a broad range of issues relating to arbitrage, market efficiency, implementation of investment strategies, liquidity shocks, risk management, financial intermediation, investment management, hedge funds, incentives, systemic risk, and regulation. May be used with: (9-200-009) Long-Term Capital Managem
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| 27 pp.
| Case — Farallon Capital Management: Risk Arbitrage (A)
Perold, Andre F.; Howard, Robert
Farallon Capital Management, an investment firm that specializes in risk arbitrage, has taken significant long and short positions in MCI Communications and British Telecommunications, respectively, in the belief that the proposed merger of these firms will be successfully completed. Raises the issues facing Farallon as positive and negative events relating to the merger unfold. Provides a rich institutional setting for understanding certain investment strategies involving short selling, and for understanding merger arbitrage and its function in the capital markets.
HBS Number: 9-299-020 Type: Case (Field)
Publication Date: 10/6/1998 Revision Date: 11/17/1999
Geographic Setting: San Francisco, CA Industry Setting: investment management Number of Employees: :30
Event Year Start: 1997 Event Year End: 1998
Subjects: Acquisitions; Arbitrage; Investment management; Mergers; Risk management
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| 10 pp.
| Case — RJR Nabisco Holdings Capital Corp.—1991
Author(s): Tufano, Peter
Publication Date: 06/18/1992 Revision Date: 06/29/1995
Product Type: Case (Library)
Product Description: An investment manager notices a large apparent discrepancy in the prices of two nearly-identical bonds issued in conjunction with a major leveraged buyout. The manager must figure out whether the instruments are mispriced relative to one another, and if so, how to capture arbitrage profits from the temporary anomaly. The case introduces students to a wide variety of instruments ranging from very simple treasury strips to P-I-K debentures. Encourages students to devise “arbitrage” positions and understand the degree to which these positions are riskless.
HBS Number: 9-292-129
Geographic Setting: United States Industry Setting: investment management
Event Year Start: 1991 Event Year End: 1991
Subjects: Bonds; Capital markets; Investment management; Leveraged buyouts; Pricing
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-296-058), 10p, by Peter Tufano
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| 36 pp.
| 13. Risk, Cost of Capital, and Capital Budgeting
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| 12 pp.
| Case — Lex Service PLC: Cost of Capital
Author(s): Kester, W. Carl; Backstrand, Kendall
Publication Date: 04/26/1996 Revision Date: 03/13/1998
Product Type: Case (Field)
Product Description: The Lex Service company has grown to become a large multidivisional company with a substantial capital budget. In 1993, the board was reviewing its capital budgeting procedures. Specifically, it sought to determine the company’s cost of capital and whether it should use different hurdle rates for different divisions. Teaching Purpose: To introduce practical techniques for estimating the cost of equity using CAPM, and designing discount rates appropriate for businesses of different risk.
HBS Number: 9-296-003
Geographic Setting: United Kingdom Industry Setting: automotive Gross Revenues: $2.0 billion revenues
Event Year Start: 1993 Event Year End: 1993
Subjects: Automotive supplies; Capital budgeting; Capital costs; United Kingdom
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-204-158), 11p, by W. Carl Kester
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| 24 pp.
| Case — Cost of Capital at Ameritrade
Author(s): Mitchell, Mark; Stafford, Erik
Publication Date: 10/31/2000 Revision Date: 04/26/2001
Product Type: Case (Field)
HBS Number: 9-201-046
Geographic Setting: Omaha, NE Industry Setting: brokerage Number of Employees: 500 Gross Revenues: $77 million revenues
Event Year Start: 1997 Event Year End: 1997
Subjects: Capital budgeting; Capital costs; Capital markets; Financial services; Holding companies; Regression analysis; Valuation
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-201-123), 10p, by Mark Mitchell, Erik Stafford
Product Description: Ameritrade Holding Corp. is planning large marketing and technology investments to improve the company’s competitive position in deep-discount brokerage by taking advantage of emerging economies of scale. In order to evaluate whether the strategy would generate sufficient future cash flows to merit the investment, Joe Ricketts, chairman and CEO of Ameritrade, would need an estimate of the project‘s cost of capital. There is considerable disagreement as to the correct cost of capital estimate. A research analyst pegs the cost of capital at 12%, the CFO of Ameritrade uses 15%, and some members of Ameritrade management believe that the borrowing rate of 9% is the rate by which to discount the future cash flows expected to result from the project. There is also disagreement as to the type of business that Ameritrade is in. Management insists that Ameritrade is a brokerage firm, whereas some research analysts and managers of other online brokerage firms suggest that Ameritrade is a technology/Internet firm. Teaching Purpose: A two-day case to estimate the cost of capital that Ameritrade should employ in evaluating the proposed large investments in marketing and technology. The lesson plan builds on the prior cases in the Risk & Return module. Uses the capital asset pr
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| 11 pp.
| Case — Leveraged Betas and the Cost of Equity
Author(s): Asquith, Paul; Mullins, David M.
Publication Date: 03/29/1988 Revision Date: 06/25/1993
Product Type: Note
Product Description: The objective is to delineate on methodology for measuring the risk associated with financial leverage and estimating its impact on the cost of equity capital.
HBS Number: 9-288-036
Subjects: Capital costs; Capital structure; Equity financing
Academic Discipline: Finance
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| 12 pp.
| Case — Financial Leverage, the Capital Asset Pricing Model and the Cost of Equity Capit
Author(s): Mullins, David W., Jr.
Publication Date: 03/01/1980 Revision Date: 10/01/1980
Product Type: Note
Product Description: Demonstrates how the capital asset pricing model can be used to estimate the impact of financial leverage on the cost of equity capital. The levering and unlevering of betas are illustrated. Also presents a methodology for decomposing the cost of equity into its three components — the risk-free rate, a premium for business, and a premium for financial risk.
HBS Number: 9-280-100
>Subjects: Capital costs; Capital structure; Cost analysis; Financial management; Models; Risk assessment
Academic Discipline: Finance
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| 5 pp.
| Case — Pioneer Petroleum Corp.
Author(s): Ruback, Richard S.
Publication Date: 07/23/1991 Revision Date: 01/07/2004
Product Type: Case (Library)
Product Description: Pioneer is an integrated oil company. Its operations include exploration and development, production, transportation, and marketing. The case focuses on Pioneer’s cost of capital calculations and its choice between a single company-wide cost of capital or divisional costs of capital. Provides students the opportunity to learn how to calculate a company-wide weighted average cost of capital. An appropriate measure of the cost of equity capital is presented so that students are able to challenge their understanding of key concepts by critiquing the company‘s measure and suggesting their own.
HBS Number: 9-292-011
Geographic Setting: West Coast & Alaska Industry Setting: petroleum products
Company Size: large Gross Revenues: $15.6 billion revenues
Event Year Start: 1991 Event Year End: 1991
Subjects: Capital budgeting; Capital costs; Petroleum
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-292-080), 6p, by Thomas R. Piper
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| IV. Capital Structure and Dividend Policy
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| 39 pp.
| 14. Efficient Capital Markets and Behavioral Challenges
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| 8 pp.
| Article — Efficient? Chaotic? What’s the New Finance?
Nichols, Nancy A.
Day after day, CFOs and investors alike make decisions based on the principles of modern financial theory. Developed in the decades after World War II, these theories began as isolated academic concepts. Today they shape our corporations. Now the thinking is changing. As a result of the increasing globalization of the markets and the increased technological firepower of its participants, there is both a pragmatic and philosophical attack being waged against both the efficient market hypothesis and the capital asset pricing model. As such, the benchmarks and yardsticks that used to matter to managers—such as the well-known measure of stock price volatility, beta, and the ubiquitous credit rating--are now in question. There are, however, only the sketchy outlines of the new philosophies and practices that might eventually become post-modern theory.
HBS Number: 93208 Type: Harvard Business Review Article
Publication Date: 3/1/1993
Subjects: Economic analysis; Efficient markets; Game theory; Quantitative analysis; Securities analysis; Securities markets
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| 5 pp.
| Case — Beta Management Co.
Author(s): Edleson, Michael E.
Publication Date: 03/23/1992 Revision Date: 11/17/1993
Product Type: Case (Gen Exp)
Product Description: A manager of a small investment company has been successfully using index funds for limited market timing. Growth has allowed her to move into picking stocks. She is considering two small and highly variable listed stocks, but is concerned about the risk that these investments might add to her “portfolio.” Provides a lead-in to the CAPM. Students learn about total risk, non-diversifiable or portfolio risk, and (CAPM) beta, and calculate variability of the stocks separately, and portfolio variance with and without the stocks, to see how an extremely risky (but low-beta) stock actually reduces risk; and calculate stock betas.
HBS Number: 9-292-122
Geographic Setting: Unspecified Industry Setting: investment management
Company Size: small
Event Year Start: 1991 Event Year End: 1991
Subjects: Cost benefit analysis; Diversification; Efficient markets; Investment management; Portfolio management; Regression analysis; Risk assessment
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-294-113), 10p, by Michael E. Edleson
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| 21 pp.
| 15. Long-Term Financing: An Introduction
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| 20 pp.
| Case — USX Corp.
Author(s): Gilson, Stuart C.; Cott, Jeremy
Publication Date: 02/28/1996
Product Type: Case (Field)
Product Description: A large diversified steel and energy firm is pressured by a corporate raider to spin off its steel business in order to increase its stock price. As an alternative to the spinoff, management proposes replacing the company’s common stock with two new classes of “targeted” stock that would represent separate claims against each business segment‘s cash flows, allowing the stock market to value each business separately (and more accurately). Teaching Purpose: The case provides an opportunity to compare alternative restructuring strategies that have the same objective (in this case, to increase the company's stock price by segmenting cash flows from its distinct businesses).
HBS Number: 9-296-050
Geographic Setting: Pittsburgh, PA Industry Setting: steel Number of Employees: 42,500 Gross Revenues: $20 billion revenues
Event Year Start: 1990 Event Year End: 1991
Subjects: Corporate governance; Cost allocation; Diversification; Incentives; Restructuring; Steel; Valuation
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-298-085), 23p, by Stuart C. Gilson
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| 9 pp.
| Case — Avon Products
Author(s): Tiemann, Jonathan
Publication Date: 03/14/1989 Revision Date: 08/05/1994
Product Type: Case (Field)
HBS Number: 9-289-049
Geographic Setting: New York, NY Industry Setting: Personal care products Company Size: Fortune 500 Gross Revenues: $2.5 billion sales
Event Year Start: 1988 Event Year End: 1988
Subjects: Diversification; Dividends; Valuation
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-290-004), 10p, by Jonathan Tiemann; Teaching Note, (5-292-059), 10p, by Scott P. Mason
Product Description: Avon Products announced both a change in its business focus and a reduction of its dividend in June 1988. To offset the likely stock price effect of the dividend reduction, Avon announced at the same time an unusual exchange offer, under which it would take up to 25% of its common stock in exchange for an unusual preferred stock. The case traces the history of Avon from 1979-88. Requires students to evaluate Avon’s efforts at diversification in the early 1980s, and to relate that effort to the company‘s dividend history. Also requires students to evaluate an unusual security. Suitable for first-year students or for a second-year capital markets course.
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| 32 pp.
| 16. Capital Structure: Basic Concepts
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| 12 pp.
| Case — Acova Radiateurs
Author(s): Meulbroek, Lisa
Publication Date: 06/13/1995 Revision Date: 07/30/1999
Product Type: Case (Field)
HBS Number: 9-295-150
Geographic Setting: France Industry Setting: Plumbing & HVAC Number of Employees: 500 Gross Revenues: 337M FF
Event Year Start: 1990 Event Year End: 1990
Subjects: Acquisitions; Capital structure; Corporate control; Divestiture; International business; International finance; Leveraged buyouts; Mergers & Acquisitions; Project evaluation; Valuation
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-200-003), 21p, by Lisa Meulbroek
Product Description: In March 1990, Baring Capital Investors faced a decision about whether and how much to bid for Acova Radiateurs, a subsidiary of Source Perrier. Source Perrier had decided to sell Acova, and Baring Capital Investors thought it might make a good leveraged buyout candidate. May be used with: (9-296-051) Note on European Buyouts.
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| 14 pp.
| Case — Debt Policy at UST, Inc.
Author(s): Mitchell, Mark
Publication Date: 05/10/2000 Revision Date: 05/03/2001
Product Type: Case (Library)
Product Description: UST, Inc. is a very profitable smokeless tobacco firm with low debt vis-a-vis other firms in the tobacco industry. The setting for the case is UST’s recent decision to substantially alter its debt policy by borrowing $1 billion to finance its stock repurchase program. Teaching Purpose: Introduction to optimal capital structure with emphasis on calculation of interest tax shields.
HBS Number: 9-200-069
Geographic Setting: Greenwich, CT Industry Setting: tobacco Number of Employees: 4,765 Gross Revenues: $1.4 billion revenues
Event Year Start: 1999 Event Year End: 1999
Subjects: Capital structure; Debt management; Long term financing; Taxation; Tobacco industry
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-201-002), 11p, by Mark Mitchell
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| 5 pp.
| Case — Continental Carriers, Inc.
Author(s): Kester, W. Carl
Publication Date: 06/25/1991
Product Type: Case (Gen Exp)
Product Description: A U.S. trucking company is considering using debt for the first time to acquire another company. The directors of the company are divided in their opinion of the likely impact of leverage on Continental Carriers’ performance. Their differences must be reconciled and a decision reached about whether to issue new debt or equity to fund the acquisition. Students are introduced to the impact of leverage on performance variables such as profits, growth, earnings per share, and stock price. A rewritten version of an earlier case.
HBS Number: 9-291-080
Geographic Setting: United States Industry Setting: trucking
Company Size: large Gross Revenues: $1 billion revenues
Event Year Start: 1988 Event Year End: 1988
Subjects: Acquisitions; Capital structure; Debt management; Equity financing; Expansion; Financial analysis; Leveraged buyouts; Trucking; Trucking industry
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-292-050), 7p, by W. Carl Kester
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| 16 pp.
| Case — Diageo plc
Author(s): Chacko, George; Tufano, Peter; Musher, Joshua
Publication Date: 01/29/2001 Revision Date: 08/06/2003
Product Type: Case (Field)
Product Description: A major U.K.-based multinational is reevaluating its leverage policy as it restructures its business. The treasury team models the tradeoffs between the benefits and costs of debt financing, using Monte Carlo simulation to estimate the savings from the interest tax shields and expected financial distress costs under several sets of leverage policies. The group treasurer (CFO) must decide whether and how the simulation results should be incorporated into a recommendation to the board of directors, and more generally, what recommendation to make regarding the firm’s leverage policy. Teaching Purpose: Introduces students to the static-tradeoff theory of capital structure, as actually implemented in a major firm. Also introduces students to the use of simulation to capture the impact of different business policies under uncertainty. May be used with: (9-201-095) HBS Inc. Simulation Model.
HBS Number: 9-201-033
Geographic Setting: United KingdomIndustry Setting: consumer goods, food, drinksNumber of Employees: 72,000Gross Revenues: $12 billion revenues
Event Year Start: 2000Event Year End: 2000
Subjects: Capital structure; Consumer goods; Debt management; Financial strategy; Food; Models; United Kingdom
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-201-117), 12p, by George Chacko
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| 33 pp.
| 17. Capital Structure: Limits to the Use of Debt
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| 5 pp.
| Case — Continental Carriers, Inc.
Author(s): Kester, W. Carl
Publication Date: 06/25/1991
Product Type: Case (Gen Exp)
Product Description: A U.S. trucking company is considering using debt for the first time to acquire another company. The directors of the company are divided in their opinion of the likely impact of leverage on Continental Carriers’ performance. Their differences must be reconciled and a decision reached about whether to issue new debt or equity to fund the acquisition. Students are introduced to the impact of leverage on performance variables such as profits, growth, earnings per share, and stock price. A rewritten version of an earlier case.
HBS Number: 9-291-080
Geographic Setting: United States Industry Setting: trucking
Company Size: large Gross Revenues: $1 billion revenues
Event Year Start: 1988 Event Year End: 1988
Subjects: Acquisitions; Capital structure; Debt management; Equity financing; Expansion; Financial analysis; Leveraged buyouts; Trucking; Trucking industry
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-292-050), 7p, by W. Carl Kester
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| 14 pp.
| Case — Debt Policy at UST, Inc.
Author(s): Mitchell, Mark
Publication Date: 05/10/2000 Revision Date: 05/03/2001
Product Type: Case (Library)
Product Description: UST, Inc. is a very profitable smokeless tobacco firm with low debt vis-a-vis other firms in the tobacco industry. The setting for the case is UST’s recent decision to substantially alter its debt policy by borrowing $1 billion to finance its stock repurchase program. Teaching Purpose: Introduction to optimal capital structure with emphasis on calculation of interest tax shields.
HBS Number: 9-200-069
Geographic Setting: Greenwich, CT Industry Setting: tobacco Number of Employees: 4,765 Gross Revenues: $1.4 billion revenues
Event Year Start: 1999 Event Year End: 1999
Subjects: Capital structure; Debt management; Long term financing; Taxation; Tobacco industry
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-201-002), 11p, by Mark Mitchell
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| 22 pp.
| 18. Valuation and Capital Budgeting for the Levered Firm
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| 12 pp.
| Article — Using APV: A Better Tool for Valuing Operations
Author(s): Luehrman, Timothy A.
Publication Date: 05/01/1997
Product Type: Harvard Business Review Article
HBS Number: 97306
Subjects: Acquisitions; Assets; Capital budgeting; Capital costs; Financial analysis; Present value; Valuation
Academic Discipline: Finance
Product Description: For the past 25 years, managers have been taught that the best practice for valuing assets — that is, an existing business, factory, product line, or market position — is to use a discounted-cash-flow (DCF) methodology. That is still true. But the particular version of DCF that has been accepted as the standard — using the weighted-average cost of capital (WACC) — is now obsolete. Today’s better alternative, adjusted present value (APV), is especially versatile and reliable. It will likely replace WACC as the DCF methodology of choice among generalists. Like WACC, APV is used to value operations, or assets-in-place. Timothy Luehrman explains APV and walks readers through a case example designed to teach them how to use it. May be used with: (9-297-082) Note on Value Drivers.
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| 10 pp.
| Case — Marriott Corp.: The Cost of Capital (Abridged)
Author(s): Ruback, Richard S.
Publication Date: 03/24/1989 Revision Date: 04/01/1998
Product Type: Case (Field)
Product Description: Gives students the opportunity to explore how a company uses the Capital Asset Pricing Model (CAPM) to compute the cost of capital for each of its divisions. The use of Weighted Average Cost of Capital (WACC) formula and the mechanics of applying it are stressed.
HBS Number: 9-289-047
Geographic Setting: Unspecified Industry Setting: hotels and restaurants
Company Size: large
Event Year Start: 1988 Event Year End: 1988
Subjects: Capital costs; Hotels & motels
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-298-081), 18p, by Richard S. Ruback
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| 21 pp.
| Case — Cross-Border Valuation
Author(s): Froot, Kenneth A.; Kester, W. Carl
Publication Date: 01/19/1995 Revision Date: 08/07/1997
Product Type: Note
Product Description: Provides a review of valuation techniques used to assess cross-border investments. Discusses the discounting of free cash flows with a weighted average cost of capital and the use of adjusted present value. Special concerns such as foreign-exchange risk, country risks, and international diversification are also discussed. Unlike Note on Cross-Border Valuation, this note contains no discussion of valuing real options. A rewritten version of an earlier note.
HBS Number: 9-295-100
Subjects: Capital costs; Foreign exchange; Foreign exchange rates; International finance; Present value; Valuation
Academic Discipline: Finance
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| 5 pp.
| Case — Pioneer Petroleum Corp.
Author(s): Ruback, Richard S.
Publication Date: 07/23/1991 Revision Date: 01/07/2004
Product Type: Case (Library)
Product Description: Pioneer is an integrated oil company. Its operations include exploration and development, production, transportation, and marketing. The case focuses on Pioneer’s cost of capital calculations and its choice between a single company-wide cost of capital or divisional costs of capital. Provides students the opportunity to learn how to calculate a company-wide weighted average cost of capital. An appropriate measure of the cost of equity capital is presented so that students are able to challenge their understanding of key concepts by critiquing the company‘s measure and suggesting their own.
HBS Number: 9-292-011
Geographic Setting: West Coast & Alaska Industry Setting: petroleum products
Company Size: large Gross Revenues: $15.6 billion revenues
Event Year Start: 1991 Event Year End: 1991
Subjects: Capital budgeting; Capital costs; Petroleum
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-292-080), 6p, by Thomas R. Piper
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| 41 pp.
| 19. Dividends and Other Payouts
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| 17 pp.
| Case — Dividend Policy at FPL Group, Inc. (A)
Author(s): Esty, Benjamin C.; Schreiber, Craig F.
Publication Date: 03/15/1995 Revision Date: 12/13/1995
Product Type: Case (Library)
Product Description: A Wall Street analyst has just learned that FPL (the holding company for Florida’s largest electric utility) may cut its dividend in several days despite a 47-year streak of consecutive dividend increases. In response to the deregulation of the electric utility industry, FPL has substantially revised its competitive strategy over the past several years. The analyst must decide whether a change in dividend policy will be a part of FPL‘s financial strategy in this deregulated environment. Teaching Purpose: Allows students to examine how firms set and change dividend policy. Also provides a background for examining why firms pay dividends and whether dividend policy matters.
HBS Number: 9-295-059
Geographic Setting: FloridaIndustry Setting: electric utilityCompany Size: largeNumber of Employees: 12,400Gross Revenues: $5.3 billion revenues
Event Year Start: 1994Event Year End: 1994
Subjects: Corporate strategy; Deregulation; Dividends; Electric power; Financial strategy; Securities analysis
Academic Discipline: Finance
Supplementary Materials: Supplement (Library), (9-295-106), 1p, by Benjamin C. Esty, Craig F. Schreiber; Teaching Note, (5-296-072), 21p, by Benjamin C. Esty, Craig F. Schreiber
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| 9 pp.
| Case — Avon Products
Author(s): Tiemann, Jonathan
Publication Date: 03/14/1989 Revision Date: 08/05/1994
Product Type: Case (Field)
HBS Number: 9-289-049
Geographic Setting: New York, NY Industry Setting: Personal care products Company Size: Fortune 500 Gross Revenues: $2.5 billion sales
Event Year Start: 1988 Event Year End: 1988
Subjects: Diversification; Dividends; Valuation
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-290-004), 10p, by Jonathan Tiemann; Teaching Note, (5-292-059), 10p, by Scott P. Mason
Product Description: Avon Products announced both a change in its business focus and a reduction of its dividend in June 1988. To offset the likely stock price effect of the dividend reduction, Avon announced at the same time an unusual exchange offer, under which it would take up to 25% of its common stock in exchange for an unusual preferred stock. The case traces the history of Avon from 1979-88. Requires students to evaluate Avon’s efforts at diversification in the early 1980s, and to relate that effort to the company‘s dividend history. Also requires students to evaluate an unusual security. Suitable for first-year students or for a second-year capital markets course.
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| 17 pp.
| Case — Ford Motor Co.’s Value Enhancement Plan (A)
Author(s): Perold, Andre F.
Publication Date: 01/22/2001 Revision Date: 03/28/2002
Product Type: Case (Library)
HBS Number: 9-201-079
Geographic Setting: Dearborn, MI Industry Setting: automobiles Company Size: Fortune 500 Number of Employees: 335,000 Gross Revenues: $162 billion revenues
Event Year Start: 2000 Event Year End: 2000
Subjects: Automobile industry; Capital structure; Cash flow; Dividends; Financial strategy; Stockholders; Stocks; Taxation
Academic Discipline: Finance
Supplementary Materials: Supplement (Library), (9-202-103), 7p, by Andre F. Perold, Joshua Musher; Teaching Note, (5-204-116), 13p, by Andre F. Perold, Peter Tufano
Product Description: In April 2000, Ford Motor Co. announced a shareholder Value Enhancement Plan (VEP) to significantly recapitalize the firm’s ownership structure. Ford had accumulated $23 billion in cash reserves and under the VEP would return as much as $10 billion of this cash to shareholders. In exchange for each share currently held, the plan would give stockholders one new share plus the choice of receiving $20 either in cash or additional new Ford common shares. Shareholders electing to receive cash would be taxed on these distributions at capital gain rates. Among other things, the plan provided a means for the Ford family to obtain liquidity without having to dilute their 40% voting interest (even though they own only 5% of the shares outstanding.) Students must wrestle with the following questions: Why was Ford proposing this transaction instead of a traditional share repurchase or a cash dividend? How did the interests of the Ford family factor into this decision, and what did the transaction imply about the future involvement of the family in the company? Why was Ford distributing such a significant amount of cash at this particular point in time? Did the distribution signa
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| V. Long-Term Financing
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| 36 pp.
| 20. Issuing Securities to the Public
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| 25 pp.
| Case — Kendle International, Inc.
Author(s): Crane, Dwight B.; Marshall, Paul W.; Reinb
Publication Date: 02/28/2000 Revision Date: 10/06/2000
Product Type: Case (Field)
Product Description: Candace Kendle and Christopher Bergen, the CEO and COO of Kendle International, Inc., are reviewing ways to finance the growth of their privately-owned company. Kendle is a contract research organization that conducts clinical drug trials for pharmaceutical and biotechnology companies. To compete more effectively, Kendle plans to grow through international acquisitions. It is now time to decide whether to go ahead with a full program of two European acquisitions, a large debt financing through Nationsbank, and an initial public offering to repay the debt and provide cash for future acquisitions. The falling stock prices of Kendle’s competitors add pressure to the situation. Teaching purpose: To develop skills in designing and implementing an integrated financial and acquisition strategy.
HBS Number: 9-200-033
Geographic Setting: Cincinnati, OH Industry Setting: contract research Number of Employees: 300 Gross Revenues: $13 million revenues
Event Year Start: 1997 Event Year End: 1997
Subjects: Acquisitions; Bank loans; Entrepreneurial finance; Financing; Growth strategy; IPO; Pharmaceuticals industry; Stock offerings
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-201-014), 16p, by Dwight B. Crane, Indra A. Reinbergs
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| 18 pp.
| Case — W.R. Hambrecht + Co.: OpenIPO
Perold, Andre F.; Bhow, Gunjan
OpenIPO is a new mechanism for pricing and distributing initial public offerings. The system, which is based on a Dutch auction, represents an attempt by the investment bank W.R. Hambrecht + Co. to change the manner in which IPOs are underwritten. The case provides a setting in which to discuss the existing set of institutional arrangements relating to the underwriting of IPOs, including the well-known phenomenon of the initial-day spike in price. Also provides a vehicle for discussing the informational efficiency of stock prices and the role of intermediaries and markets in providing investors with company-specific information. Can be used to talk about the issues raised by electronic trading and the distribution of securities over the Internet to relatively uninformed individuals.
HBS Number: 9-200-019 Type: Case (Field)
Publication Date: 10/20/1999 Revision Date: 1/18/2000
Geographic Setting: San Francisco, CA Industry Setting: finance Number of Employees: :100
Event Year Start: 1999 Event Year End: 1999
Subjects: Capital markets; Electronic commerce; IPO; Investment banking; Investment management; Stock exchanges; Stock offerings; Underwriting
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| 11 pp.
| Case — General Property Trust
Author(s): Tufano, Peter; Handley, John C.
Publication Date: 04/20/1999
Product Type: Case (Field)
Product Description: In 1994 General Property Trust, an Australian property investment trust, was anticipating future cash needs beyond those that the Trust could fund with internal cash flows. The managers of the Trust were considering a novel financing structure whereby it would sell call options on the Trust’s units. The options‘ structure made it likely that they would be exercised, and therefore investors would choose to buy the Trust's units. The managers had to determine the appropriateness of this funding scheme in light of the Trust's alternatives and evaluate the proposed pricing of the options that would be offered via a rights offering. Teaching Purpose: Allows the instructor to discuss the application of cash-flow hedging, to examine the use of equity-financing strategy, to introduce students to rights offerings, and to apply derivative-pricing techniques to value a complex equity derivative.
HBS Number: 9-299-098
Geographic Setting: AustraliaIndustry Setting: real estate trustGross Revenues: $AS 110 million net income
Event Year Start: 1994Event Year End: 1994
Subjects: Australia; Derivatives; Financing; Hedging; Options; Real estate; Real estate investment; Risk management; Trusts
Academic Discipline: Finance
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| 12 pp.
| Article — How Venture Capital Works
Zider, Bob
In this article, Bob Zider, president of the Beta Group, a California-based firm that invests in commercializing new technologies, presents an analysis of present-day venture capitalists and shows why its practitioners have a lot more
HBS Number: 98611 Type: Harvard Business Review Article
Publication Date: 11/1/1998
Subjects: Entrepreneurial finance; Entrepreneurship; Equity financing; Investment banking; Stock offerings; Venture capital
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| 7 pp.
| Case — Note on the Initial Public Offering Process
Author(s): Lerner, Josh
Publication Date: 10/11/1999 Revision Date: 07/20/2007
Product Type: Note
HBS Number: 9-200-018
Subjects: Entrepreneurial finance; Equity financing; Financial strategy; IPO; Venture capital
Academic Discipline: Finance
Product Description: Provides an overview of the going public process.
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| 11 pp.
| Case — Note on Angel Financing
Author(s): Gompers, Paul A.
Publication Date: 01/05/1998 Revision Date: 09/05/2001
Product Type: Note
Product Description: Discusses the economics of the private equity market and recent efforts by the U.S. Small Business Administration to promote greater angel financing.
HBS Number: 9-298-083
Geographic Setting: Industry Setting:
Subjects: Capital markets; Entrepreneurial finance; Financing
Academic Discipline: Finance
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| 24 pp.
| 21. Leasing
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| 25 pp.
| Case — Kmart, Inc. and Builders Square
Meulbroek, Lisa; Barnett, Jonathan
In 1997, Kmart received an offer from retail buyout specialists Leonard Green & Partners for the purchase of its ailing 162-store home improvement chain, Builders Square. Green’s offer included a $10 million cash payment, a warrant to
HBS Number: 9-200-044 Type: Case (Library)
Publication Date: 2/3/2000 Revision Date: 7/12/2000 Industry Setting: building supplies retailing Gross Revenues: $2.5 billion revenues
Event Year Start: 1997 Event Year End: 1997
Subjects: Building materials industry; Capital structure; Corporate reorganization; Debt management; Discount department stores; Divestiture; Leasing; Liability; Options; Restructuring; Valuation
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| VI. Options, Futures, and Corporate Finance
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| 43 pp.
| 22. Options and Corporate Finance
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| 18 pp.
| Case — Cephalon, Inc.
Author(s): Tufano, Peter; Verter, Geoffrey; Mullarkey, Markus F.
Publication Date: 04/13/1998
Product Type: Case (Library)
Product Description: In early 1997, Cephalon, Inc. awaited an FDA panel’s decision on whether its drug, Myotrophin, would be approved. If the drug was approved, the firm might need substantial additional funds to commercialize the drug as well as to buy back rights to it (which had been sold earlier to finance its development). The firm‘s CFO is considering a variety of financing strategies, including buying call options on the firm's own stock and paying for these options by issuing shares at the current time. Teaching Purpose: To introduce students to the use of equity derivatives as part of a risk management strategy, to examine the application of cash-flow hedging in a corporate context, and to examine the pricing of a derivative security with large jump risk.
HBS Number: 9-298-116
Geographic Setting: United StatesIndustry Setting: biotechGross Revenues: $5 million revenues
Event Year Start: 1997Event Year End: 1997
Subjects: Biotechnology; Derivatives; Financial strategy; Hedging; Options; Risk management
Academic Discipline: Finance
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| 5 pp.
| Case — Keller Fund’s Option Investment Strategies
Kester, W. Carl
A closed-end mutual fund’s decision to study option trading provides an opportunity to study the profit profile and pricing of multiple option investment strategies (e.g., buy a call, buy a put, write a call, buy stock-write call, etc.). This case is designed to provide students with an introduction to option pricing.
HBS Number: 9-295-096 Type: Case (Gen Exp)
Publication Date: 1/19/1995
Geographic Setting: North America Industry Setting: investment management
Event Year Start: 1994 Event Year End: 1994
Subjects: Derivatives; Investment management; Mutual funds; Option pricing; Risk management; Securities
Supplementary Materials: Teaching Note, (5-298-013), 17p, by W. Carl Kester
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| 19 pp.
| Case — Arundel Partners: The Sequel Project
Author(s): Luehrman, Timothy A.; Teichner, William A
Publication Date: 06/12/1992
Product Type: Case (Field)
Product Description: A group of investors is considering buying the sequel rights for a portfolio of feature films. They need to determine how much to offer to pay and how to structure a contract with one or more major U.S. film studios. The case contains cash flow estimates for all major films released in the United States during 1989. These data are used to generate estimates of the value of sequel rights prior to the first film’s release. Designed to introduce students to real options and techniques for valuing them. It clearly illustrates the power of option pricing techniques for certain types of capital budgeting problems. Also illustrates the practical limitations of such techniques. May be used with: (9-295-074) Capital Projects as Real Options: An Introduction.
HBS Number: 9-292-140
Geographic Setting: California Industry Setting: movies
Company Size: large Gross Revenues: $2.1 billion revenues
Event Year Start: 1992 Event Year End: 1992
Subjects: Capital budgeting; Decision trees; Entertainment industry; Option pricing; Real options; Securities analysis; Uncertainty
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-295-118), 14p, by Timothy A. Luehrman
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| 16 pp.
| Article — Investment Opportunities as Real Options: Getting Started on the Numbers
Luehrman, Timothy A.
In this article, Timothy A. Luehrman, professor of finance at Thunderbird, The American Graduate School of International Management, presents a framework that can bridge the gap between the practicalities of real-world capital projects
HBS Number: 98404 Type: Harvard Business Review Article
Publication Date: 7/1/1998
Subjects: Capital investments; Financial instruments; Option pricing; Options; Real options
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| 25 pp.
| 23. Options and Corporate Finance: Extensions and Applications
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| 19 pp.
| Case — Arundel Partners: The Sequel Project
Author(s): Luehrman, Timothy A.; Teichner, William A
Publication Date: 06/12/1992
Product Type: Case (Field)
Product Description: A group of investors is considering buying the sequel rights for a portfolio of feature films. They need to determine how much to offer to pay and how to structure a contract with one or more major U.S. film studios. The case contains cash flow estimates for all major films released in the United States during 1989. These data are used to generate estimates of the value of sequel rights prior to the first film’s release. Designed to introduce students to real options and techniques for valuing them. It clearly illustrates the power of option pricing techniques for certain types of capital budgeting problems. Also illustrates the practical limitations of such techniques. May be used with: (9-295-074) Capital Projects as Real Options: An Introduction.
HBS Number: 9-292-140
Geographic Setting: California Industry Setting: movies
Company Size: large Gross Revenues: $2.1 billion revenues
Event Year Start: 1992 Event Year End: 1992
Subjects: Capital budgeting; Decision trees; Entertainment industry; Option pricing; Real options; Securities analysis; Uncertainty
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-295-118), 14p, by Timothy A. Luehrman
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| 16 pp.
| Article — Investment Opportunities as Real Options: Getting Started on the Numbers
Luehrman, Timothy A.
In this article, Timothy A. Luehrman, professor of finance at Thunderbird, The American Graduate School of International Management, presents a framework that can bridge the gap between the practicalities of real-world capital projects
HBS Number: 98404 Type: Harvard Business Review Article
Publication Date: 7/1/1998
Subjects: Capital investments; Financial instruments; Option pricing; Options; Real options
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| 18 pp.
| Case — Cephalon, Inc.
Author(s): Tufano, Peter; Verter, Geoffrey; Mullarkey, Markus F.
Publication Date: 04/13/1998
Product Type: Case (Library)
Product Description: In early 1997, Cephalon, Inc. awaited an FDA panel’s decision on whether its drug, Myotrophin, would be approved. If the drug was approved, the firm might need substantial additional funds to commercialize the drug as well as to buy back rights to it (which had been sold earlier to finance its development). The firm‘s CFO is considering a variety of financing strategies, including buying call options on the firm's own stock and paying for these options by issuing shares at the current time. Teaching Purpose: To introduce students to the use of equity derivatives as part of a risk management strategy, to examine the application of cash-flow hedging in a corporate context, and to examine the pricing of a derivative security with large jump risk.
HBS Number: 9-298-116
Geographic Setting: United StatesIndustry Setting: biotechGross Revenues: $5 million revenues
Event Year Start: 1997Event Year End: 1997
Subjects: Biotechnology; Derivatives; Financial strategy; Hedging; Options; Risk management
Academic Discipline: Finance
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| 5 pp.
| Case — Keller Fund’s Option Investment Strategies
Kester, W. Carl
A closed-end mutual fund’s decision to study option trading provides an opportunity to study the profit profile and pricing of multiple option investment strategies (e.g., buy a call, buy a put, write a call, buy stock-write call, etc.). This case is designed to provide students with an introduction to option pricing.
HBS Number: 9-295-096 Type: Case (Gen Exp)
Publication Date: 1/19/1995
Geographic Setting: North America Industry Setting: investment management
Event Year Start: 1994 Event Year End: 1994
Subjects: Derivatives; Investment management; Mutual funds; Option pricing; Risk management; Securities
Supplementary Materials: Teaching Note, (5-298-013), 17p, by W. Carl Kester
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| 19 pp.
| 24. Warrants and Convertibles
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| 16 pp.
| Case — Goldman, Sachs & Co.: Nikkei Put Warrants—1989
Tufano, Peter
Japanese financial institutions’ willingness to sell put options on the Nikkei Stock Average provides investment banks with the raw material from which to create a security that would allow U.S. investors to bet on falls in the Japanese Stock Market. The investment bank that seeks to create this new product must decide how to design, produce (hedge), and price the options (Nikkei Put Warrants). Highlights the global nature of new product development in the securities market and provides opportunities for students to make and critique the key decisions involved in creating this new product. Students must consider the costs of production, the preferences of consumers, competitive dynamics, and the pricing of substitutes for the new product.
HBS Number: 9-292-113 Type: Case (Field)
Publication Date: 2/13/1992 Revision Date: 9/26/1995
Geographic Setting: Global Industry Setting: investment banking
Event Year Start: 1989 Event Year End: 1989
Subjects: Capital markets; Hedging; Investment banking; Product design; Product introduction; Securities
Supplementary Materials: Teaching Note, (5-296-067), 20p, by Peter Tufano
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| 24 pp.
| Case — Jupiter Management Co.
Moore, Ronald W.
The manager of a small company growth fund considers relative merits of investing in a company’s convertible debt versus its common.
HBS Number: 9-292-107 Type: Case (Gen Exp)
Publication Date: 2/4/1992 Revision Date: 2/28/1996
Geographic Setting: United States Industry Setting: money management
Company Size: small
Subjects: Investment management; Mutual funds; Portfolio management
Supplementary Materials: Teaching Note, (5-298-023), 7p, by W. Carl Kester
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| 4 pp.
| Case — Coca-Cola Harmless Warrants
Mason, Scott P.; Desai, Mihir
Underscores the arbitrage implicit in the pricing of a complex unit of debt and warrants issued by the Coca-Cola Co.
HBS Number: 9-295-007 Type: Case (Library)
Publication Date: 7/12/1994 Revision Date: 10/17/1995
Geographic Setting: United States Industry Setting: beverages
Company Size: Fortune 500
Subjects: Beverages; Bonds; Innovation; Pricing
Supplementary Materials: Teaching Note, (5-295-099), 5p, by Scott P. Mason, Mihir Desai
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| 32 pp.
| 25. Derivatives and Hedging Risk
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| 22 pp.
| Case — Futures on the Mexican Peso
Froot, Kenneth A.; McBrady, Matthew; Seasholes, Mark
The Chicago Mercantile Exchange needs to decide how to design, and whether and when to introduce, a futures contract on the Mexican peso.
HBS Number: 9-296-004 Type: Case (Field)
Publication Date: 8/1/1995 Revision Date: 10/1/1996
Geographic Setting: Mexico/United States Industry Setting: financial services
Event Year Start: 1995 Event Year End: 1995
Subjects: Commodity markets; Country analysis; Foreign exchange rates; International finance; Mexico; Money; Money markets
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| 40 pp.
| Case — Alcoma: The Strategic Use of Frozen Concentrated Orange Juice Futures
Goldberg, Ray A.; Herndon, Phil; Morris, Kate
Increases in orange tree production led to an orange juice surplus. How does one manage price risk in the orange juice industry under these conditions?
HBS Number: 9-595-029 Type: Case (Field)
Publication Date: 10/3/1994 Revision Date: 11/18/1994
Geographic Setting: Global Industry Setting: orange juice Gross Revenues: $50 million revenues
Event Year Start: 1994 Event Year End: 1994
Subjects: Agribusiness; Commodity markets; Hedging; Risk management
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| 23 pp.
| Case — Introduction to Derivative Instruments
Author(s): Kester, W. Carl; Backstrand, Kendall
Publication Date: 04/05/1995 Revision Date: 03/04/1997
Product Type: Note
Product Description: Provides an elementary introduction to three major classes of derivative instruments: options, forwards and futures, and swaps.
HBS Number: 9-295-141
Subjects: Commodity markets; Derivatives; Securities
Academic Discipline: Finance
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| 24 pp.
| Case — Risk Management at Apache
Author(s): Meulbroek, Lisa; Malhotra, Puja
Publication Date: 04/16/2001 Revision Date: 08/27/2001
Product Type: Case (Field)
Product Description: After initiating a hedging strategy, Apache Corp. is interested in revisiting its decision to determine if hedging is value-adding. This case investigates how the company initially decided to hedge against commodity price risk and how it implemented its hedging practice. Also examines when financial theory argues hedging is value-adding. Teaching Purpose: To determine when a company should hedge.
HBS Number: 9-201-113
Industry Setting: oil & gas exploration
Event Year Start: 2001Event Year End: 2001
Subjects: Commodities; Commodity markets; Futures; Hedging; Options; Risk management
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-202-019), 8p, by Lisa Meulbroek
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| VII. Short-Term Finance
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| 29 pp.
| 26. Short-Term Finance and Planning
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| 8 pp.
| Case — Dynashears, Inc.
Piper, Thomas R.
A senior loan officer is reviewing the recent performance of a company that has failed to repay its loan as scheduled. The failure results from a cyclical downturn in sales, coupled with a lag in cutting back production. Inventory risk is minimal. Teaching objective: Practice in financial analysis and in understanding the impact of business cycle on durable goods companies. Also an opportunity to evaluate the situation from a lender’s perspective. A rewritten version of an earlier case.
HBS Number: 9-292-017 Type: Case (Gen Exp)
Publication Date: 10/31/1991 Revision Date: 11/1/1993
Geographic Setting: United States Industry Setting: industrial shears
Company Size: small Gross Revenues: $26 million revenues
Event Year Start: 1991 Event Year End: 1991
Subjects: Financial analysis; Financial planning; Loan evaluation; Tools
Supplementary Materials: Teaching Note, (5-292-018), 7p, by Thomas R. Piper
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| 6 pp.
| Case — Dell’s Working Capital
Author(s): Ruback, Richard S.; Sesia Jr., Aldo
Publication Date: 08/16/2000 Revision Date: 12/15/2003
Product Type: Case (Library)
Product Description: Dell Computer Corp. manufactures, sells, and services personal computers. The company markets its computers directly to its customers and builds computers after receiving a customer order. This build-to-order model enables Dell to have much smaller investment in working capital than its competitors. It also enables Dell to more fully enjoy the benefits of reduction in component prices and to introduce new products more quickly. Dell has grown quickly and has been able to finance that growth internally by its efficient use of working capital and its profitability. This case highlights the importance of working capital management in a rapidly growing firm.
HBS Number: 9-201-029
Geographic Setting: Round Rock, TXIndustry Setting: high technology
Event Year Start: 1997Event Year End: 1997
Subjects: Capital; Computer industry; Financial management
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-201-017), 15p, by Richard S. Ruback, Aldo Sesia Jr.
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| 6 pp.
| Case — Toy World, Inc.
Author(s): Kester, W. Carl
Publication Date: 11/23/1994 Revision Date: 02/23/1996
Product Type: Case (Gen Exp)
Product Description: A shift from seasonal to level production of toys will change the seasonal cycle of Toy World’s working capital needs and necessitate new bank credit arrangements. Students must analyze the company‘s performance, forecast funds needs, and make a recommendation. Teaching Purpose: To introduce the pattern of current assets and cash flows in a seasonal company and provide an elementary exercise in the construction of pro forma financial statements and estimation of funds needs. A rewritten version of an earlier case.
HBS Number: 9-295-073
Geographic Setting: United States Industry Setting: toys
Company Size: small Gross Revenues: $10 million revenues
Event Year Start: 1994 Event Year End: 1994
Subjects: Financing; Inventory management; Production planning; Production scheduling; Risk management; Toy industry
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-297-118), 8p, by W. Carl Kester
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| 22 pp.
| 27. Cash Management
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| 29 pp.
| 28. Credit and Inventory Management
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| 27 pp.
| Case — Collateralized Loan Obligations and the Bistro Trust
Froot, Kenneth A.; Farman, Ivan
Examines a large bank trying to protect itself from the risks and capital requirement created by its loan portfolio. Considers a variety of ways available to the firm to offload the risks. Teaching Purpose: Credit risk management.
HBS Number: 9-299-016 Type: Case (Field)
Publication Date: 11/24/1998 Revision Date: 5/14/1999
Geographic Setting: United States Industry Setting: financial
Company Size: large Number of Employees: :20,000 Gross Revenues: $10 billion revenues
Event Year Start: 1998 Event Year End: 1998
Subjects: Banking; Credit; Financial strategy; Loan evaluation; Risk management
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| 8 pp.
| Case — Wiegandt GmbH Cologne
Crane, Dwight B.; Millett, Mathew Mateo
The credit department of Wiegandt, a furniture manufacturer, is evaluating the financial condition of two stores that retail the company’s furniture. Teaching Purpose: Provides an opportunity to teach basic financial analysis and to discuss the trade credit policy of companies.
HBS Number: 9-298-159 Type: Case (Field)
Publication Date: 6/8/1998 Revision Date: 4/19/1999
Geographic Setting: Germany Industry Setting: furniture sales
Subjects: Credit; Financial analysis; Financial management; Furniture; Germany; Profitability analysis
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| 8 pp.
| Case — SureCut Shears, Inc.
Kester, W. Carl
A bank loan officer must determine whether to waive convenants and extend terms on a line of credit granted to SureCut Shears. At issue is whether the inability of SureCut to pay down its line of credit is due to a temporary cyclical downturn or other long-term financial problems. Teaching Purpose: To expose students to the impact of a cyclical downturn on financial performance, and to provide practice in modeling business cycles in pro forma forecasts.
HBS Number: 9-297-013 Type: Case (Gen Exp)
Publication Date: 3/4/1997 Revision Date: 1/26/1999
Geographic Setting: United States Industry Setting: manufacturing Gross Revenues: $30 million revenues
Event Year Start: 1996 Event Year End: 1996
Subjects: Banking; Credit; Forecasting; Pro forma financial statements; Recessions
Supplementary Materials: Teaching Note, (5-297-079), 7p, by W. Carl Kester
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| 8 pp.
| Article — Too Big to Fail? Walter Wriston and Citibank
Grant, James
In his review of Phillip L. Zweig’s Wriston: Walter Wriston, Citibank, and the Rise and Fall of American Financial Supremacy, James Grant puts the career of Citibank‘s longtime CEO into historical perspective. At the end of the last century, credit was a virtue to be cultivated. But by the time Walter Wriston became Citibank's president in 1967, banking had changed. The Federal Reserve Act had given the United States a central bank, and the Federal Deposit Insurance Corp. protected depositors' savings. In Wriston's time, credit, far from being delicate, often appeared to be indestructible. Grant, who edits the respected Grant's Interest Rate Observer, argues that credit is no longer an absolute virtue, like honesty, but an economic asset, like property, plant, or equipment.
HBS Number: 96404 Type: Harvard Business Review Article
Publication Date: 7/1/1996
Subjects: Banking; Credit; Leadership
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| VIII. Special Topics
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| 42 pp.
| 29. Mergers, Acquisitions, and Divestitures
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| 15 pp.
| Case — PPL Group
Crane, Dwight B.; Joseph, Penny
The CEO is considering the sale of his privately owned company to a publicly traded company as a way of obtaining capital and putting his assets in a more liquid form. Teaching Purpose: Discussion of methods to finance growth of a smaller company.
HBS Number: 9-200-001 Type: Case (Field)
Publication Date: 7/30/1999 Revision Date: 10/18/1999
Geographic Setting: Toronto, Canada Industry Setting: marketing services
Company Size: small Gross Revenues: $10 million revenues
Event Year Start: 1998 Event Year End: 1998
Subjects: Canada; Entrepreneurial finance; Financing; Mergers & acquisitions; Small business
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| 25 pp.
| Case — PepsiCo’s Bid for Quaker Oats (A)
Author(s): Baldwin, Carliss Y.; Soudakov, Leonid
Publication Date: 06/21/2001 Revision Date: 07/31/2002
Product Type: Case (Library)
Product Description: Throughout 1999, PepsiCo closely tracked several potential strategic acquisitions. In the fall of 2000, it appeared that the right moment for an equity-financed acquisition had arrived. At this time, PepsiCo management decided to initiate confidential discussions with The Quaker Oats Co. about a potential business combination. Gatorade, a key brand in Quaker’s portfolio, had long been on PepsiCo‘s wish list, but PepsiCo's managers, led by CEO Roger Enrico and CFO Indra Nooyi, were committed to upholding the value of PepsiCo's shares and, as a result, were determined not to pay too much for Quaker. This case provides information that allows students: 1) to assess the value of Quaker's businesses, 2) to estimate potential synergies associated with a Pepsi-Quaker merger, and 3) to come up with an effective negotiation strategy. Teaching Purpose: Valuation of a multidivisional business in support of an M&A bid, structuring a stock-for-stock offer, and negotiation of the acquisition of a public company. May be used with: (9-801-459) PepsiCo's Bid for Quaker Oats (B).
HBS Number: 9-801-458
Geographic Setting: United States Industry Setting: beverage and food Number of Employees: 100,000 Gross Revenues: $20 billion revenues
Event Year Start: 2000 Event Year End: 2000
Subjects: Bids; Brands; Mergers & acquisitions; Stock exchanges; Valuation
Academic Discipline: Finance
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| 15 pp.
| Case — Radio One, Inc.
Author(s): Ruback, Richard S.; Fischer, Pauline
Publication Date: 09/26/2000 Revision Date: 05/29/2003
Product Type: Case (Field)
Product Description: Radio One (NYSE: ROIA and RIOAK), the largest radio group targeting African-Americans in the country, had the opportunity to acquire 12 urban stations in the top 50 markets from Clear Channel Communications, Inc. (NYSE: CCU) in the winter of 2000. The stations were being sold by Clear Channel Communications, Inc. to obtain Federal Communications Commission (FCC) approval for its acquisition of AMFM, Inc. (NYSE: AFM). Radio One was also negotiating the acquisition of nine stations in Charlotte, NC; Augusta, GA; and Indianapolis, ID. The proposed acquisitions would double the size of Radio One. The case focuses on the strategic and financial evaluation of the proposed acquisitions. Teaching Purpose: Provides students the opportunity to forecast the cash flows associated with the proposed acquisitions and to value those projections using discounted cash flows as well as transaction and trading multiples.
HBS Number: 9-201-025
Geographic Setting: Washington, DCIndustry Setting: radioGross Revenues: $81.7 million revenues
Event Year Start: 1999Event Year End: 1999
Subjects: Acquisitions; Broadcasting industry; Mergers; Present value; Valuation
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-201-027), 14p, by Richard S. Ruback
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| 17 pp.
| Case — Acquisition of Consolidated Rail Corp. (A)
Author(s): Esty, Benjamin C.; Millett, Mathew Mateo
Publication Date: 04/13/1998 Revision Date: 07/20/2005
Product Type: Case (Library)
Product Description: On October 15, 1996, Virginia-based CSX and Pennsylvania-based Consolidated Rail (Conrail), the first and third largest railroads in the eastern United States, announced their intent to merge in a friendly deal worth $8.3 billion. This deal was part of an industry-wide trend toward consolidation and promised to change the competitive dynamics of the Eastern rail market. Students, as shareholders, must decide whether to tender shares into the front-end of a two-tiered acquisition offer. To make this decision, they must value Conrail as an acquisition target and understand the structure of CSX’s offer. May be used with: (9-298-095) The Acquisition of Consolidated Rail Corp. (B).
HBS Number: 9-298-006
Geographic Setting: United States Industry Setting: Railroad Number of Employees: 77,500 Gross Revenues: $19 billion revenues
Event Year Start: 1996 Event Year End: 1997
Subjects: Acquisitions; Auctions; Competitive bidding; Corporate control; Deregulation; Game theory; Mergers; Valuation
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-298-087), 39p, by Benjamin C. Esty, Mathew Mateo Millett
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| 33 pp.
| Case — CIBC WOOD GUNDY SECURITIES INC. - JOHN LABATT LIMITED
Author(s): Robert W. White
Publication Date: 12/4/1996 Revision Date: 2/13/2007
Product Type: Case
Ivey ID: 9A96B047
Geographic Setting: Canada/Belgium/USA/Mex. Industry Setting: Food and Kindred Products Size: Large
Year of Event: 1995 Level of Difficulty: 4 - Undergraduate/MBA
Subjects: Restructuring; Valuation; Mergers & Acquisitions; Financial Strategy
Major Disciplines: Finance; International
Product Description: LBT Acquisition Corp. (LBTAC) made a Cdn$24 per share hostile takeover bid for John Labatt Limited (Labatt). LBTAC was a subsidiary of Onex Corporation (Onex), a Toronto-based conglomerate which secured financial assistance from Quilmes Industrial S.A., a Luxembourg-based holding company. Prior to the Onex bid, Labatt had been negotiating a merger with Interbrew S.A./N.V., Belgium’s largest brewer. People close to the negotiations indicated they had heard rumors that the Dutch Brewer, Heineken N.V., and others were prepared to make bids. The case is from the perspective of Wood Gundy, the financial advisor to Labatt. The challenge for the student is to structure a deal in order to maximize shareholder value.
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| 20 pp.
| Case — Microsoft/Intuit
Fruhan, William E., Jr.
Microsoft Corp. proposes to acquire Intuit Corp. The case examines the strategic fit and the price proposed to complete the transaction. Teaching Purpose: Valuation and implementing a business strategy.
HBS Number: 9-295-121 Type: Case (Library)
Publication Date: 5/24/1995 Revision Date: 3/18/1997
Geographic Setting: United States Industry Setting: computer software
Company Size: Fortune 500 Gross Revenues: $4 billion revenues
Subjects: Acquisitions; Mergers; Software; Valuation
Supplementary Materials: Teaching Note, (5-297-087), 12p, by William E. Fruhan Jr.
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| 16 pp.
| 30. Financial Distress
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| 20 pp.
| Case — Iridium LLC
Author(s): Esty, Benjamin C.; Qureshi, Fuaad A.; Olse
Publication Date: 03/08/2000 Revision Date: 03/27/2001
Product Type: Case (Library)
Product Description: Part of a module on financing large projects in the elective curriculum course entitled “Large-Scale Investment.” Set in August 1999, just after Iridium, a global communications firm, declared bankruptcy. While the case describes Iridium’s creation, development, and commercial launch, it concentrates primarily on the firm‘s financial strategy and execution as it raised more than $5 billion of capital. Describes the specific securities Iridium issued, the sequence in which it issued them, and the firm's financial performance prior to bankruptcy. Using analyst forecasts, students can value the firm prior to bankruptcy, but will recognize how difficult it is to value technology start-ups given the uncertainty in demand. Teaching Purpose: Intended to challenge existing theories of capital structure: is Iridium's target capital structure of 60% debt optimal? Helps students understand the benefits and limitations of issuing different kinds of securities (e.g. cash-pay vs. zero coupon bonds, bank debt vs. public bonds, etc.) and the complexity of sequencing different kinds of securities. The overall objective is to help students understand the relevant issues in financing large, greenfield projects.
HBS Number: 9-200-039
Geographic Setting: United States, Global Industry Setting: telecommunications Number of Employees: 1,000 Gross Revenues: $5 billion revenues
Event Year Start: 1990 Event Year End: 1999
Subjects: Bankruptcy; Capital investments; Capital structure; Project finance; Telecommunications; Valuation
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-200-050), 34p, by Benjamin C. Esty
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| 14 pp.
| Case — Infinity Carpets, Inc.
Piper, Thomas R.; Moore, Ronald W.
A turnaround expert must determine whether a firm in distress is worth more as a going concern than its liquidation value. If so, the finances of the firm must be restructured consistent with the bargaining power of the holders of the various securities. The restructuring requires a delay in principal repayment, rate concessions, and a debt-for-equity swap. Teaching Purpose: Restructuring of firms in financial distress.
HBS Number: 9-299-014 Type: Case (Field)
Publication Date: 9/11/1998 Revision Date: 12/1/1998
Geographic Setting: United States Industry Setting: carpet manufacture
Company Size: mid-size Gross Revenues: $55 million revenues
Event Year Start: 1990 Event Year End: 1990
Subjects: Bankruptcy; Debt management; Restructuring; Valuation
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| 19 pp.
| Case — Bankruptcy and Restructuring at Marvel Entertainment Group
Author(s): Esty, Benjamin C.; Auerbach, Jason S.
Publication Date: 09/16/1997 Revision Date: 08/13/2007
Product Type: Case (Library)
HBS Number: 9-298-059
Geographic Setting: United States Industry Setting: Media Number of Employees: 1,600 Gross Revenues: $800 million revenues
Event Year Start: 1997 Event Year End: 1997
Subjects: Bankruptcy; Corporate governance; Liquidation; Restructuring; Valuation
Academic Discipline: Finance
Supplementary Materials: Teaching Note, (5-298-028), 22p, by Benjamin C. Esty
Product Description: Marvel Entertainment Group is the leading comic book publisher in the United States, with superheros like Spider-Man, the Incredible Hulk, the X-Men, and Captain America. It is also one of the leading manufacturers of sports and entertainment trading cards under the Fleer and Sky Box brand names. In the mid-1990s, it experienced sharp declines in both businesses, causing it to file for bankruptcy in December 1996. This case is set in late January 1997, shortly after Marvel filed its reorganization plan with the bankruptcy court and approximately one month before creditors will have to vote on the plan at the confirmation hearing. Two of the most prominent corporate raiders of the 1980s are pitted against each other for control of the company. On one side is Ronald Perelman, who controls Marvel through his MacAndrews & Forbes holding company. On the other side is Carl Icahn, who controls 25% of Marvel’s public debt. Icahn and the other bondholders must decide whether to accept Perelman‘s plan, to reject it in favor of their own plan, or to sell their bonds before the confirmation hearing. Perelman must decide whether to change the plan in response to the debtholders' threats or to wait and see what happens at the hearing. A rewritten version of another case.
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| 30 pp.
| 31. International Corporate Finance
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| 22 pp.
| Case — JAFCO American Ventures, Inc.: Building a Venture Capital Firm
Author(s): Kuemmerle, Walter; Ellis, Chad
Publication Date: 02/16/1999 Revision Date: 03/30/2004
Product Type: Case (Field)
Product Description: Describes the second attempt at entry of JAFCO, a large Japanese venture capital firm, into the U.S. venture capital market. The U.S. subsidiary, JAFCO America Ventures, is in the midst of a challenging turnaround. Going forward, the U.S. subsidiary’s leadership needs to make a number of important decisions regarding investment focus, deal flow generation, compensation, and cooperation with the Japanese parent company. Teaching Purpose: Introduction to venture capital operations, strategy and focus of venture capital firms, and managing global private equity firms.
HBS Number: 9-899-099
Geographic Setting: United States, JapanIndustry Setting: venture capitalNumber of Employees: 14Gross Revenues: $200 million revenues
Event Year Start: 1997Event Year End: 1997
Subjects: Entrepreneurial finance; Foreign investment; Incentives; International entrprnl finance; International finance; International operations; Japan; Venture capital
Academic Discipline: Entrepreneurship
Supplementary Materials: Case Video, (9-802-805), 3 min, by Walter Kuemmerle; Teaching Note, (5-899-305), 26p, by Walter Kuemmerle
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| 12 pp.
| Case — Foreign Direct Investment
Author(s): Alfaro, Laura; Clavell, Esteban
Publication Date: 10/28/2002 Revision Date: 07/06/2007
Product Type: Note
HBS Number: 9-703-018
Industry Setting: Banking industry
Subjects: Business government relations; Economic development; Foreign exchange; Government policy; International banking; International finance; Investments; Multinational corporations; Policy making
Academic Discipline: Business & government
Product Description: Briefly reviews motivations and trends behind foreign direct investment and multinational corporations as well as the policy debate that surrounds them.
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| Back Matter
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| 9 pp.
| Appendix A: Mathematical Tables
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| 3 pp.
| Appendix B: Solutions to Selected End-of-Chapter Problems
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| 3 pp.
| Name Index
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| 26 pp.
| Subject Index
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