Team 1:

Case 1::: Kingston-Murray Enterprises (Case# UV0610-PDF-ENG)

1. Why should Kingston-Murray consider issuing this complex derivative security when company could
raise the same amount of money with a straight bond or stock issue?
2. What kind of investor would be interested in owning a LYON? If a LYON is good for the issuer, is it
bad for the investor?
3. How much of the $195 issue price is composed of conversion value, and how much is bond value?
Assuming this price was estimated using all the assumptions mentioned in the case (European option and
no early redemptions or calls by the company), do you expect $195 to be higher or lower than the fair
market value of this instrument?
4. How big a problem is the risk of early conversion to KME? How would you change the design of the
LYON to eliminate this risk?
5. Do you see potential use nowadays for such a structured and complex debt financing? Give specific
examples of companies, which might benefit from such financing and explain your answer.

Case 2::: Sterling Household Products Company (Case# 913556-PDF-ENG)

1. How much business risk is associated with Sterling’s proposed acquisition of the germicidal, sanitation
and antiseptic products unit of Montagne Medical? What is the cost of equity capital appropriate for
evaluating the free cash flows associated with this investment? What is the correct capital structure and
weighted average cost of capital for discounting the investment’s free cash flow?
2. What are the amounts and timing of the acquisition investment’s free cash flow from 2013 through
2022? What is the terminal value of the final 10 years of the acquisition, as of 2022? What is the net
present value to Sterling of this base investment? What are the amounts and timing of the follow-up
expansion investment opportunity’s free cash flow from 2013 through 2022? What is the terminal value
of the follow-up acquisition, as of 2022? What is the net present value of this follow-up investment and
the combined base and expansion investments?
3. Is acquisition of Montagne Medical’s germicidal, sanitation and antiseptic products unit value-additive to
Sterling?
4. What are the strategic issues associated with the proposed acquisition? What uncertainties or trends do
you see which could make the acquisition more or less attractive on both a financial and a strategic
basis?
 Team 2:

Case 1::: Marriott Corp.: The Cost of Capital (Abridged) (Case# 289047-PDF-ENG)
1. How does Marriott use its estimate of its cost of capital? Does this make sense?
2. What is the weighted average cost of capital for Marriott Corporation?
- what risk-free rate and risk premium did you use to calculate the cost of equity?
- How did you measure Marriott’s cost of debt?
3. What type of investment would you value using Marriott’s WACC?
4. If Marriott used a single corporate hurdle rate for evaluating investment opportunities in each of its lines
of business, what would happen to the company over time?
5. What is the cost of capital for the lodging, restaurant and services divisions of Marriott?
- What risk-free rate and premium did you use for the cost of equity for each division? Why?
- How did you measure the cost of debt for each division? Why?
- How did you measure beta of each division?

Case 2::: Ford Motor Co.'s Value Enhancement Plan (Case# 201079-PDF-ENG)
1. Does Ford have too much cash? Why or why not?
2. How does the VEP work? Explain all elements and steps of the Plan.
3. What are the alternatives for distributing cash?
4. What problem is the VEP plan designed to solve? Does it seem to be an effective or weak solution to
you? Explain why.
5. As a shareholder, how would you approve the VEP? Why or why not? Would you elect cash or shares?
 Team 3:

Case 1::: Transparent Value LLC (Case# 108069-PDF-ENG)

1. Briefly explain RBP methodology. What are the strengths and weaknesses of the RBP methodology?
2. Can you suggest ways to improve this methodology?
3. Do you find the ROE figures and trends reasonable? What drives the ROE down (Exhibit 5)?
4. Would you recommend launching a new index fund based on the RBP indexes? Why?

Case 2::: Midland Energy Resources, Inc.: Cost of Capital (Brief Case) (Case# 4129-PDF-ENG)
1. How are Mortensen’s estimates of Midland’s cost of capital used? How, if at all, should these anticipated
uses affect the calculations?
2. Calculate Midland’s corporate WACC. Which assumptions did you make about various inputs to the
calculations? Is Midland’s choice of EMRP appropriate? If not, what recommendations would you make and
why?
3. Should Midland use a single corporate hurdle rate for evaluating investment opportunities in all of its
divisions? Why or why not?
4. Compute a separate cost of capital for the E&P and Marketing and Refining divisions. What causes them
to differ from one another?
5. How would you compute a cost of capital for the Petrochemical division?
 Team 4:

Case 1::: NetFlix.com, Inc. (Case# 201705-XLS-ENG)

1. What is NetFlix’s long-run objective? How does NetFlix plan to achieve its long-run objective? How
would you assess its performance to date?
2. Why does McCarthy use a subscriber model to forecast NetFlix’s future cash flow requirements? What
are the basic elements of a subscriber model?
3. Construct and annual subscriber model for NetFlix that can be used to forecast the expected cash flows
for a new subscriber over the next five years. What is the value of the new NetFlix subscriber (assume a
discount rate of 20%)? Based on your analysis, should NetFlix be acquiring new subscribers?
4. Assuming that NetFlix does not change its current business model, what is the value of the company?
What changes, if any, would you suggest be made to its existing business model? What are the value
implications of these changes?

Case 2::: Braddock Industries Inc. (Case# 211061-PDF-ENG)

1. What factors in a company’s operating performance drive shareholder value? How important is revenue
growth? How important is earnings/share growth?
2. Carefully examine each of the incentive plans presented in Exhibits 4, 5, 6 and 8. From the perspective of
management what do you like/dislike about each plan? How well does each plan do in aligning
management and shareholder interests? Why do you think each plan was ultimately replaced?
3. Try to work through Exhibits 9 and 10 line by line to get an understanding of how the “economic value
created” incentive plan works. How well do you think this plan will work in aligning management and
shareholder interests? Would you like to see a plan like this adopted at your own company? Would it create
a change in behavior? What problems would you predicting if the new plan were adopted?
4. What should Jim Schaff do regarding the management incentive plan at Braddock?
 Team 5:

Case 1::: Teuer Furniture (A): Discounted Cash Flow Valuation (Case# KEL778-PDF-ENG)
You need to estimate the value of Teuer Furniture using a discounted cash flow approach. Prepare a
memo detailing the value of Teuer and the key assumptions underlying your valuation. The memo
should specify what Teuer is worth per share and why. Support your answer with the logic and the facts
from the case. The items below should guide your analysis.

1. Construct pro forma financials: to value Teuer Furniture you need to construct pro forma income
statement and balance sheet. Use the assumptions and data from case.
2. Value the firm using discounted cash flow method by constructing the cash flow from assets for six years
(2013 to 2018). You should not include the 2012 cash flows. You will need to include a terminal value in
your valuation. Initially, assume that the long-term growth rate of Teuer Furniture’s cash flows is 3.5%
and that the firm’s cost of capital is 12.1%. What is the value of Teuer Furniture on a per-share basis?
3. Evaluate the key assumptions. The value of Teuer that you determined is a function of the assumptions
made by you. Your base case valuation should be built upon the forecasts of Jerabek’s team. Discounted
cash flow analysis depends upon a large number of assumptions. You can change the assumptions where
you think it is appropriate. If you do make changes, explain the reasons you did so – especially with the
most crucial assumptions/factors. An assumption may be considered crucial when it is both empirically
relevant (i.e., your valuation result will change substantially) and cannot be precisely measured.

Case 2::: Teuer Furniture (B): Multiples Valuation (Case# KEL788-PDF-ENG)

You are responsible for estimating the value of Teuer Furniture (overall and on a per share basis). You
should use the multiples approach to value the firm. Items below will help guide your analysis.

2. Calculate Teuer’s multiples. Let’s say, the value of Teuer derived using DCF methodology is $32.00,
calculate the sales, net income and cash flow from assets multiples for Teuer at the end of 2012. Why do
the three ratios differ from each other? Calculate the three multiples at the end of 2018. If they are
expected to change between 2012 and 2018, explain why. Consider what each ratio is measuring and
thus what assumptions you are making about comparability when you use each ratio.
3. Comparable firms. When you value a firm using a multiples approach, you only use firms that are
comparable to Teuer (the target firm). On what dimensions should the firm be comparable to target firm?
Each of nine possible firms is in the same industry as Teuer. Based on the information in the case, pick a
set of firms that you consider to be comparable to Teuer in the important dimensions. You will need to
be explicit about which dimensions are important.
4. Value Teuer using a multiples approach. Based on the set of firms that you consider comparable,
calculate the relevant multiple and value Teuer (price per share). If your multiples valuation differs from
DCF valuation given in Question 2 above, explain why.