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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

This map was prepared by an experienced editor at HBS Publishing, not by a teaching professor. Faculty at Harvard Business School were not involved in analyzing the textbook or selecting the cases and articles.

Every case map provides only a partial list of relevant items from HBS Publishing. To explore alternatives, or for more information on the cases listed below, visit:

Case Title

Institution,

Geographical and

Abstract, Key Subjects

HBSP

Industry Setting,

Product

Company Size,

Number,

Time Frame

Length,

Teaching

Note

Chapter 1 Introduction to Corporate Finance

 

HBS

United States,

Explores the challenges facing Tim Williams, the new CFO of a publicly-traded enterprise software company, as he attempts to rebuild his company's reputation for reliable financial reporting following a highly visible financial reporting crisis. Armed with an understanding of the company business model, sales cycle, and revenue recognition policy, Williams must assess how various factors contributes to the company's crisis, and which policies and business practices can be changed to ensure against future financial reporting issues. Useful early in a course on financial reporting to develop a basic framework for the role of financial reporting and disclosure in the capital markets. Provides opportunities for discussing key aspects of the financial reporting system, including accrual accounting, management's responsibility for financial reporting, and the set of generally accepted accounting principles and audit practices that impose restrictions on management. Additionally, highlights the roles of capital market regulators (the SEC) and information intermediaries. Subjects: Accounting; Capital markets; Disclosure; Financial reporting; Financial strategy; Forecasting; GAAP; SEC; Software; Value of information

102013

software, 4,000

10p

employees, 1993

TN available

Clarkson Lumber Co. Thomas R. Piper

HBS

United States, retail lumber, 11 employees, 1991

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. Develops skills

297028

6p

 

TN available

 

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

in financial analysis, financial forecasting, and financial planning. Subjects: Financial analysis; Financial planning; Forecasting; Loan evaluation

Chapter 2 Accounting Statements and Cash Flow

 

HBS

N/A

Discusses the accounting equation and defines common terms found in the statement. Also provides

7p

101108

an example of the balance sheets of Coca-Cola Co., Ariba, Inc., and Safeway, Inc. Subjects: Accounting; Balance sheets; Financial reporting

David F.

Hawkins; Jacob

 

Cohen

HBS

United States, retail $30 billion

Describes a situation in which a company (Kmart) refinances a portion of its debt. Used to illustrate

Christopher F.

10p

Noe

199017

revenues

how the asset and liability sides of the balance sheet are linked. Subjects: Accounting procedures; Assets; Balance sheets; Debt management; Discount department stores; Liability; Retail stores

1995-1996

HBS

N/A

Includes a description of the common components of the income statement. Includes examples of the

6p

101109

income statements of Home Depot, Inc., Lucent Technology, Inc., Gap, Inc., and McDonald's Corp. and lends itself to a brief discussion regarding these companies. Subjects: Accounting; Financial reporting; Income

David F.

Hawkins; Jacob

Cohen

HBS

N/A

Discusses the components of the statement of cash flow and its direct and indirect format of

8p

101107

presentation. Also briefly explains the difference between cash and accrual accounting and provides examples of Standard Microsystems Corp. and Intel Corp. Subjects: Accounting; Cash flow; Financial reporting

HBS

N/A

Explains the concepts and procedures behind the statement of cash flows. Presents an overview of the

10p

196108

reporting objectives of this report, and describes in detail the preparation of the cash flow statement using both the indirect method and the direct method. A complete numerical example is presented. Financial analysis techniques using the cash flow statement are also described. A rewritten version of an earlier note. Subjects: Accounting procedures; Capital budgeting; Cash flow; Financial analysis; Financial ratios; Financial reporting

HBS

N/A

Introduces the statement of cash flow. Contains three examples of multi-year statements of cash flows from three unidentified companies. The analysis tasks include examination of cash flows, analysis of profitability of operations, investment policies, and financing. Teaching Purpose: To introduce the

8p

Three Examples William J. Bruns Jr.; Julie H. Hertenstein

193103

TN available

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

statement of cash flows now required in the United States. Subjects: Accounting policies; Accounting procedures; Cash flow; Financial analysis; Financial reporting; Securities analysis

Chemalite, Inc. (B): Cash Flow Analysis Robert L. Simons Antonio Davila

HBS

United States

Students are asked to use actual and pro forma financial statements to prepare a statement of cash flows under both the direct and indirect method. Subjects: Accounting procedures; Cash flow; Chemicals; Financial analysis

195130

chemicals

TN available

$2 million

revenues

1991-1992

Sears, Roebuck and Co. vs. Wal- Mart Stores, Inc. Gregory S. Miller ; Christopher F. Noe

HBS

United States,

This case is designed to familiarize students with the use of financial ratios. Two retailers, Sears, Roebuck and Co. and Wal-Mart Stores, Inc., have a very similar value for return on equity (ROE) in the 1997 fiscal year. Students use the information in the case and the accompanying exhibits, which include financial statements as well as disclosures regarding corporate strategies and accounting policies for each company, to analyze the value creation process for each firm. This case provides a good introduction regarding the combination of such information to create a powerful tool for financial statement analysis. Subjects: Discount department stores; Financial analysis; Financial ratios; Financial statements; Retail stores; Return on equity

101011

retail, 200,000

18p

employees, 1997

TN available

Butler Lumber Co. Thomas R. Piper

HBS

United States

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,

4p

retail lumber

292013

$3 million

 

TN available

revenues

1991

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. Subjects: Financial analysis; Financial planning; Forecasting; Loan evaluation

Crystal Meadows of Tahoe, Inc. William J. Bruns Jr.

HBS

California, Utah

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

6p

skiing

192150

$20 million

TN available

revenues

 

1991

information which allows a student to prepare both a direct and an indirect statement of cash flows. A rewritten version of an earlier case. Subjects: Accounting policies; Cash flow; Management accounting; Recreation

Toy World, Inc. W. Carl Kester

HBS

United States

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

6p

toys

 

295073

$10 million

TN available

revenues

1994

performance, forecast funds needs, and make a recommendation. Teaching Purpose: To introduce

Harvard Business School Publishing 800-545-7685 (Outside the U.S. and Canada 617-783-7600) custserv@hbsp.harvard.edu www.hbsp.harvard.edu/educators

Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

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. Subjects:

Financing; Inventory management; Production planning; Production scheduling; Risk management; Toy industry

Chapter 3 Financial Markets and Net Present Value:

 

First Principles of Finance (Advanced) and Chapter 4 Net Present Value

American International Group, Inc. Kenneth A. Froot Heidi Suzanne Nelson

HBS

United States

American International Group, Inc. (AIG), one of the world's largest and most innovative insurers and

31p

insurance

200026

$30 billion

financial intermediaries, is thinking about strategy in an era of new competition and Internet distribution.

revenues

1999

Teaching Purpose: To demonstrate issues associated with a large financial intermediary. Subjects: Capital markets; Corporate strategy; Electronic commerce; Insurance; Internet

Fremont Financial Corp. Erik Sirri; Ann Zeitung

HBS

Los Angeles, CA banking

Highlights the relationship between financial markets and financial intermediaries in the capital raising

28p

294054

$25 million revenues

process. Fremont Financial is an asset-based lender to middle market companies. The firm has three

 

1992

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. Subjects: Banking; Capital markets; Commercial banking; Commercial credit; Financial services; Small business

NetFlix.com, Inc. E. Scott Mayfield

HBS

Los Gatos, CA Internet/home video start-up $5 million revenues

The CEO of a successful Internet start-up must decide whether or not 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

11p

 

201037

TN available

2000

requirement that, in order to go public, Internet companies 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

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

contractual relationships with both its suppliers and its customers. Teaching Purpose: Provides an opportunity for students to construct a detailed cash flow model (a subscriber model) for a company in a fast-growing market for which standard financial ratios provide limited insight. The specific case setting requires students to think critically about the expected cash flows that are likely to be generated by the business. Also provides the setting for an interesting discussion about strategic versus financial value related to the acquisition of subscribers to a new Internet service. Highlights the need to coordinate operating and financial strategies and demonstrates that financing considerations may preclude first-best operating strategies. Subjects: Cash flow; Electronic commerce; Financial planning; Forecasting; Internet; IPO

HBS

N/A

An individual is considering the development of a new restaurant. To make the decision, she uses NPV analysis to determine whether she should undertake the investment, and if so, the optimal size of the investment. Teaching Purpose: Introduces net present value analysis. Subjects: Capital budgeting; Present value; Restaurants

2p

201099

Mark Mitchell

TN available

Investment Analysis Exercises Dwight B. Crane Penny Joseph

HBS

N/A

To teach present value analysis. Subjects: Financial analysis; Present value

4p

299049

 

HBS

Italy

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:

7p

home appliances

Richard S.

202017

1999

Ruback;

TN available

Sudhakar

Balachandran;

Aldo Sesia

Students evaluate the potential investment using a discount cash flow analysis. Subjects: Appliances; Capital budgeting; Cash flow; ERP; Europe; Forecasting; Investments; Present value

Chapter 5 How to Value Bonds and Stocks

 

HBS

N/A

A set of four exercises that teach compounding interest and valuing bonds. Teaching Purpose: To

4p

Todd Pulvino

201101

teach the mechanics of valuing bonds. Subjects: Bonds; Financial instruments; Interest rates; Present value; Valuation

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

HBS

N/A

Discusses several ways in which venture-backed firms can be valued, including comparables, net

21p

297050

present value, decision-tree analysis, and the "venture capital method." Teaching Purpose:

Joshua Lerner;

Provides an introduction to valuation of entrepreneurial firms. Subjects: Entrepreneurial finance; Entrepreneurship; Financial analysis; Valuation; Venture capital

John Willinge

Cougars Scott P. Mason ; Mihir Desai

HBS

Unspecified

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. Subjects: Bonds; Innovation; Interest rates; Pricing

295006

6p

 

TN available

HBS

United States,

The manager of a small company growth fund considers relative merits of investing in a company's convertible debt versus its common. Subjects:

292107

money

Ronald W.

24p

management

Moore

TN available

Investment management; Mutual funds; Portfolio management

Arbitrage in the Government Bond Market? Michael E. Edleson; Peter Tufano

HBS

United States,

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

293093

money

9p

management,

TN available

1991

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. Subjects: Bonds; Capital markets; Securities analysis; Valuation

HBS

Michigan,

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. 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 signal a change in the company's appetite for making acquisitions or future capital expenditures? If shareholders collectively elected to receive less than $10 billion in cash, how would Ford distribute the remaining cash? Provides a rich setting in which to discuss one of the most basic decisions corporations face: how to return cash to

201079

automobiles,

17p

335,000

 

B case

employees, 2000

Plan (A) Andre F. Perold

available

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

shareholders. It is a vehicle for discussing corporate financial policies and capital structure decisions, particularly as they relate to cash dividends and share repurchases. Subjects: Automobile industry; Capital structure; Cash flow; Dividends; Financial strategy; Stockholders; Stocks; Taxation

HBS

N/A

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. Demonstrates how valuation is affected by the location of trade/ownership, and why arbitrage doesn't lead to integration of international financial markets.

296077

19p

TN available

Dividend Policy at FPL Group, Inc. (A) Benjamin C. Esty Craig F. Schreiber

HBSP

Florida, electric

A

Wall Street analyst has just learned that FPL (the

295059

utility, 12,400

holding company for Florida's largest electric utility)

17p

employees, 1994

may cut its dividend in several days despite a 47-year streak of consecutive dividend increases. In response

B case

available

to

the deregulation of the electric utility industry,

TN available

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. Allows students to examine how firms set and change dividend policy. Also provides background for examining why firms pay dividends and whether dividend policy matters. Subjects: Corporate strategy; Deregulation; Dividends; Electric power; Financial strategy; Securities analysis

Chapter 6 Some Alternative Investment Rules

 

HBS

aerospace

A

set of five exercises in capital budgeting. Student

6p

Fortune 500

calculates and compares various decision criteria (including IRR and NPV) for capital investment projects. This is an introductory case, where relevant

291031

1968-1973

TN available

Michael E.

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

Edleson

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

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. Subjects: Aerospace industry; Capital budgeting; Capital investments; Present value; Project evaluation; Securities analysis

HBS

N/A

The flows-to-equity or equity cash flows valuation method is a discounted cash flow method used to

5p

201110

estimate the equity portion of the capital structure. It is closely related to the venture capital/buyout valuation method, which estimates the IRR of the stream of cash flows accruing to equity holders. Both of these methods are likely to result in an estimate of equity value that is too low when the firm's debt is risky (or, equivalently, an IRR that is too high, depending on the method used to estimate terminal value.) This note describes a method for estimating the size of this bias, drawing upon insight from option-pricing. Teaching Purpose: Can be used in conjunction with cases involving direct estimation of equity value, using a discounted cash flow technique, and with cases employing the venture capital/buyout fund valuation method. Subjects: Capital structure; Cash flow; Entrepreneurial finance; Leveraged buyouts; Option pricing; Risk; Valuation; Venture capital

Chapter 7 Net Present Value and Capital Budgeting

 

HBS

New York, Hong Kong

In January 2001, Mary Linn, VP of finance for Ocean Carriers, a shipping company with offices in

Erik Stafford;

6p

Angela Chao;

202027

shipping

New York and Hong Kong, was evaluating a

Kathleen S.

TN available

2001

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. Subjects: Asia; Capital budgeting; Cash flow; Present value; Sales forecasting; Shipping; Valuation

Luchs

Harvard Business School Publishing 800-545-7685 (Outside the U.S. and Canada 617-783-7600) custserv@hbsp.harvard.edu www.hbsp.harvard.edu/educators

Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

HBS

New Hampshire

Describes two alternative tree-cutting strategies. The first is to cut all trees that are at least 12 inches in diameter at breast height. The second is to thin the forest by cutting less desirable trees immediately and harvesting the crop trees later. The case presents information for students to estimate the cash flows for each alternative. After estimating the corresponding cash flows, students have the opportunity to use discounted cash flow techniques

Richard S.

3p

forestry

Ruback;

201031

1999

Kathleen S.

TN available

Luchs

to

decide when to cut trees under each strategy and

to

select which strategy maximizes the value of the

forest. Subjects: Capital budgeting; Cash flow; Forest products; Present value; Valuation

HBS

N/A

Comprises seven problems that collectively allow students to work through each type of cash flow that

6p

298068

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. Subjects: Capital budgeting; Cash flow

HBS

N/A

A

shop owner has limited shelf space for display of

2p

impulse purchase products near the cash register. He

(HBS exercise) David E. Bell

189001

must select only nine to display. Exercise shows the relevance of opportunity cost or resource pricing. By setting an appropriate charge for the shelf space the products self-select for the appropriate shelves. Subjects: Linear programming; Managerial economics; Resource allocation; Retailing; Transfer pricing

Chapter 8 Strategy and Analysis in Using Net Present Value

   

HBS

N/A

Discusses several ways in which venture-backed firms can be valued, including comparables, net

21p

297050

present value, decision-tree analysis, and the "venture capital method." Teaching Purpose:

Joshua Lerner;

Provides an introduction to valuation of entrepreneurial firms. Subjects: Entrepreneurial finance; Entrepreneurship; Financial analysis; Valuation; Venture capital

John Willinge

HBS

pharmaceuticals

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

6p

Fortune 500

201023

$33 billion

TN available

revenues

Richard S.

1999

specific licensing opportunity, including the costs of the three phases of the review process, the revenues

Ruback; David

Krieger

if

approved, along with the probability of various

outcomes. Provides an introduction to decision tree

analysis and valuation. Teaching Purpose: Presents

Harvard Business School Publishing 800-545-7685 (Outside the U.S. and Canada 617-783-7600) custserv@hbsp.harvard.edu www.hbsp.harvard.edu/educators

Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

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. Subjects: Capital budgeting; Decision trees; Investments; Pharmaceuticals; Present value; Valuation

HBS

United States chemicals Fortune 500 $4 billion assets

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

7p

284066

TN available

W.

Carl Kester;

1972

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. Subjects: Capital budgeting; Chemicals; Financial management; Present value; Rates of return; Return on investment; Strategic planning

Robert R.

Glauber; David

W.

Mullins Jr.;

Stacy S. Dick

Chapter 9 Capital Market Theory: An Overview

 

Note on Commodity Futures Jay O. Light Kenneth A. Froot Nancy Donohue

HBS

N/A

Describes how commodity futures work, what products and exchanges are available, and who the

12p

293018

players in the commodity markets are. Also presents a careful discussion of the pricing of futures in commodity markets, focusing on cost of carry and risk premium approaches, and explaining backwardation and contango markets. Subjects: Commodity markets; Financial services

Chapter 10 Return and Risk: The Capital-Asset Pricing Model

 

HBS

N/A

Conventional finance theory demonstrates that, under simplistic assumptions, firms cannot add to

6p

294107

shareholder value through the use of risk management activities. Modern finance theory recently has begun to carefully consider and examine those circumstances under which firms can add to shareholder value. This note briefly reviews the major ideas prevalent in both conventional and modern finance literature regarding the potential benefits of risk management. Teaching Purpose: Enables students to question the conventional wisdom that assumes risk management activities are always beneficial to a corporation. In addition, students will examine five specific

Peter Tufano

Jonathan S.

Headley

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

conditions under which financial risk management can demonstrably add to shareholder value. Subjects:

Financial management, Hedging, Interest rates, Risk management.

Lex Service PLC: Cost of Capital W. Carl Kester Kendall Backstrand

HBSP

United Kingdom,

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. Introduces practical techniques for estimating the cost of equity using CAPM, and designing discount rates appropriate for businesses of different risk. Subjects: Automotive supplies; Capital budgeting; Capital costs; United Kingdom

296003

automotive, 1993

12p

HBS

hotels and

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. Subjects: Capital costs; Hotels & motels

10p

restaurants

289047

1988

TN available

HBS

United States

The management of an electronics company is attempting to decide whether to use a single hurdle

2p

electronics

298115

1996

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. Subjects: Capital costs; Electronics; Models; Risk assessment; Risk management; Valuation

Cost of Capital at Ameritrade Mark Mitchell; Erik Stafford

HBS

Omaha, NE

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

24p

brokerage

201046

$77 million

TN available

revenues

 

1997

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. Teaching Purpose: A two-day case to estimate the cost of capital that Ameritrade should

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

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 pricing model to estimate Ameritrade's cost of capital. Focus is on CAPM variables such as the risk free rate, market risk premium, and beta. Students will use regression analysis to directly calculate the beta estimates. Arguments will be made as to which comparable firms (brokerage firms or Internet firms) should be used to obtain beta estimates. Subjects: Capital budgeting; Capital costs; Capital markets; Financial services; Holding companies; Regression analysis; Valuation

U. of Hong Kong

Hong Kong

New World Development Co. Ltd. (NWD) was a leading conglomerate based in Hong Kong. After more than 20 years of operations, the group had

1997-2001

16p

HKU166

expanded its core businesses to include property, infrastructure, services, and telecommunications. From late 1997 to June 2001, the stock price performance of the company had been abysmal. Its efforts at asset disposals to reduce gearing, while making additional investments in new businesses, confused investors. Security analysts also blamed the company for not keeping its promise to focus on its core business of property. Teaching Purpose:

Requires students to conduct an objective assessment

TN available

 

of

NWD on both a divisional and a consolidated

basis. It provides sufficient information for them to compute the divisional cost of capital using the capital asset pricing model (CAPM) and to conduct a

simple Economic Value Added (EVA) analysis. Subjects: Asia; Capital costs; Conglomerates; Diversified companies; EVA; Financial analysis

HBS

Investment

A

manager of a small investment company has been

292122

management,

successfully using index funds for limited market

Michael E.

5p

1991

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; 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. Subjects: Cost benefit analysis; Diversification; Efficient markets; Investment management; Portfolio management; Regression

Edleson

TN available

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Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

analysis; Risk assessment

Chapter 11 An Alternative View of Risk and Return:

 

The Arbitrage Pricing Theory

 

HBS

Connecticut

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. Subjects: Arbitrage; Capital markets; Efficient markets; Financial institutions; Investment management; Risk management

23p

finance

 

200007

1997-1998

Management, L.P. (A) Andre F. Perold

B, C, and D supplemental cases available

HBS

New York, NY finance $12 million revenues

Strategic Capital Management, LLC is a hedge fund planning to make financial investments in Creative Computers and Ubid. Creative Computers recently sold approximately 20% of its Internet auction subsidiary, Ubid, to the public at $15 per share. Ubid's stock price closed the first day of trading at $48, giving Ubid a $439 million market capitalization. Paradoxically, the parent's stock price did not keep pace with that of its subsidiary. At the end of Ubid's first day as a public company, Creative Computers' equity value was less than the value of its stake in Ubid. The market prices implied that Creative Computers' non-Ubid assets had a value of negative $79 million. The relative prices and ownership link between Creative Computers and Ubid suggests a potential arbitrage opportunity. To

3p

202024

Erik Stafford;

B and C cases

Mark Mitchell;

1998-1999

Todd Pulvino

available TN available

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Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

evaluate how best to exploit this investment opportunity, Elena King, the manager of the hedge fund, must understand the risks and expected returns associated with different long and short equity positions. Teaching Purpose: To develop an understanding of how arbitrage acts to enforce the law of one price and to keep markets efficient. Also provides a venue to discuss the various real world market imperfections that can prevent arbitrageurs from immediately eliminating mispricings in equity markets. Best taught at the end of a capital markets module. Subjects: Arbitrage; Capital markets; Efficient markets; Hedging; Investment management; Spinoffs

HBS

San Francisco, CA investment

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. Subjects: Acquisitions; Arbitrage; Investment management; Mergers; Risk management

27p

299020

management

(A)

B case

30 employees

Andre F. Perold

available

1997-1998

Robert Howard

HBS

United States

An investment manager notices a large apparent discrepancy in the prices of two nearly-identical

10p

investment

292129

management

bonds issued in conjunction with a major leveraged

Peter Tufano

TN available

1991

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. Subjects: Bonds; Capital markets; Investment management; Leveraged buyouts; Pricing

Chapter 12 Risk, Cost of Capital, and Capital Budgeting

   

Cost of Capital at Ameritrade Mark Mitchell Erik Stafford

HBS

Omaha, NE

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

24p

brokerage

201046

$77 million

TN available

revenues

 

1997

economies of scale. In order to evaluate whether the strategy would generate sufficient future cash flows

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

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. 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 pricing model to estimate Ameritrade's cost of capital. Focus is on CAPM variables such as the risk free rate, market risk premium, and beta. Students will use regression analysis to directly calculate the beta estimates. Arguments will be made as to which comparable firms (brokerage firms or Internet firms) should be used to obtain beta estimates. Subjects: Capital budgeting; Capital costs; Capital markets; Financial services; Holding companies; Regression analysis; Valuation

Lex Service PLC: Cost of Capital W. Carl Kester; Kendall Backstrand

HBS

United Kingdom

The Lex Service company has grown to become a large multidivisional company with a substantial

12p

automotive

296003

$2.0 billion

capital budget. In 1993, the board was reviewing its capital budgeting procedures. Specifically, it sought

revenues

1993

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. Subjects: Automotive supplies; Capital budgeting; Capital costs; United Kingdom

HBS

West Coast & Alaska petroleum products

Pioneer is an integrated oil company. Its operations include exploration and development, production, transportation, and marketing. The case focuses on

5p

Richard S.

292011

Ruback

TN available

$15.6 billion revenues

Pioneer's cost of capital calculations and its choice between a single company-wide cost of capital or

1991

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.

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

HBS

N/A

The objective is to delineate on methodology for measuring the risk associated with financial leverage

11p

288036

and estimating its impact on the cost of equity capital. Subjects: Capital costs; Capital structure; Equity financing

HBS

N/A

Demonstrates how the capital asset pricing model can be used to estimate the impact of financial

12p

280100

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. Subjects: Capital costs; Capital structure; Cost analysis; Financial management; Models; Risk assessment

Chapter 13 Corporate Financing Decisions And Efficient Capital Markets

 

The NASDAQ Stock Market, Inc. Andre F. Perold Austin Scee

HBS

New York

NASDAQ's mission "to facilitate capital formation"

28p

financial services

is

threatened by the emergence of Electronic

202008

$870 million

Communication Networks, which are not as heavily

revenues

regulated by the SEC. This case reviews the

2001

development of NASDAQ and it's evolution from a

 

loose network of broker-dealers through to its proposed SuperMontage. SuperMontage is a centralized order book, where multiple parties can place orders (both buy and sell) for the stocks they wish to trade and where entire supply and demand curves can be displayed. To understand the context, students will learn about the structure of the capital markets and why it concerns regulators and investors. Teaching Purpose: Students are expected

to

learn about the structure of the (financial) capital

markets, why it concerns regulators and investors, and the innovations that are made to increase efficiencies. Subjects: Auctions; Corporate strategy; Efficient markets; Market structure; Regulation; Stock brokers; Stock exchanges

HBSP

Investment

A

manager of a small investment company has been

292122

management, 1991

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,

Michael E.

5p

Edleson

TN available

Harvard Business School Publishing 800-545-7685 (Outside the U.S. and Canada 617-783-7600) custserv@hbsp.harvard.edu www.hbsp.harvard.edu/educators

Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

and (CAPM) beta; 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. Subjects: Cost benefit analysis; Diversification; Efficient markets; Investment management; Portfolio management; Regression analysis; Risk assessment

HBS

Chicago, IL

On August 11, 1998, United States' Amoco Corp. (NYSE: AR) and the British Petroleum Co. (BP),

17p

pension fund

201052

1999

p.l.c. (NYSE: BP), announced the BPC merger with Amoco. This deal was the largest industrial merger

 

to

date, and created the world's third-largest oil

company, BP (NYSE: BP). This case focuses on the issues surrounding the integration of the employee- defined contribution plans at Amoco and the U.S. subsidiary of BP. One of them was that the pre- merger plans had very different investment structures. While Amoco had offered its employees only low-cost index funds, BP America had relied on actively managed mutual funds. The new plan, which would have more than 40,000 participants and $7 billion in assets, would have to either choose one of these approaches, or try to integrate them into one single structure. Teaching Purpose: To provide students with ample opportunities to discuss issues such as market efficiency, active versus passive (indexed) asset management, mutual fund performance evaluation, the design of private pension plans, and the mutual fund industry. Subjects: Capital markets; Efficient markets; Financial planning; Investments; Mutual funds; Pension funds; Pension plans; Performance measurement; Petroleum

Chapter 14 Long-Term Financing: An Introduction

 

USX Corp. Stuart C. Gilson; Jeremy Cott

HBS

Pittsburgh, PA

A

large diversified steel and energy firm is pressured

20p

steel

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).

296050

$20 billion

 

TN available

revenues

42,500

1990-1991

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Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

Subjects: Corporate governance; Cost allocation; Diversification; Incentives; Restructuring; Steel; Valuation

Telefonica de Argentina S.A. Steven R. Fenster Rajiv Gharalia

HBS

Argentina

Deals with the privatization of the Argentine telephone industry. Focuses on the restructuring aspect. Commercial banks owned sovereign debt of Argentina trading at a deep discount to par. The

23p

tele-

292039

communications $1 billion revenues

TN available

 

1990

question is whether the banks should exchange their sovereign debt instruments for the common or preferred stock of Telefonica. The purpose is to evaluate a choice between poor securities valued at the point of decision by analyzing how these various securities might look in the future. Subjects: Bankruptcy; Capital structure; Currency; Financial strategy; Investment banking; Privatization; Restructuring; South America

HBS

New York, NY beauty products

Avon Products announced both a change in its business focus and a reduction of its dividend in June

Jonathan

9p

Tiemann

289049

$2.5 billion sales

1988. To offset the likely stock price effect of the

TN available

1988

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. Subjects: Cosmetics; Diversification; Dividends; Non-store retailing; Securities; Valuation

Chapter 15 Capital Structure: Basic Concepts and Chapter 16 Capital Structure:

 

Limits to the Use of Debt

 

HBS

Greenwich, CT

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. Subjects: Capital structure; Debt management; Long term financing; Taxation; Tobacco industry

14p

tobacco

200069

$1.4 billion

 

TN available

revenues 1999

Continental Carriers, Inc. W. Carl Kester TN available

HBS

United States

A

U.S. trucking company is considering using debt

5p

trucking

for the first time to acquire another company. The

291080

$1 billion revenues

directors of the company are divided in their opinion

1988

of

the likely impact of leverage on Continental

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

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. Subjects: Acquisitions; Capital structure; Debt management; Equity financing; Expansion; Financial analysis; Leveraged buyouts; Trucking;

HBS

Waltham, MA

George Hatsopoulos, CEO at Thermo Electron Corp., is considering whether to issue shares in a

25p

high tech/

Carliss Y.

292104

thermodynamics $700 million sales

subsidiary via an initial public offering (IPO). The company has developed an unusual corporate

Baldwin; Joetta

Forsyth

1991

structure in which subsidiaries fund new ventures by raising debt and equity in the capital markets, rather than through the parent company. Teaching Purpose:

Valuation of a high tech venture, role of corporate headquarters in resource allocation, information gap between company and capital market, equity incentives to divisional managers, and accounting for common stock issuance. Subjects: Capital investments; Capital structure; Equity financing; Financial strategy; High technology products; Market signaling; Performance measurement;

Valuation

The Loewen Group, Inc. Stuart C. Gilson Jose Camacho

HBS

British Columbia,

A

publicly-traded funeral home and cemetery

24p

Canada

consolidator faces imminent financial distress. The

201062

funeral homes

company has aggressively grown through use of

$1.1 billion

debt. Restructuring the debt is potentially very costly

 

revenues 1998

to

creditors, shareholders, suppliers, and other

corporate stakeholders. Cross-border and accounting issues potentially complicate the restructuring. Teaching Purpose: To illustrate the costs of debt, financial distress, basic restructuring options, and determinants of capital structure. Subjects:

Bankruptcy; Canada; Debt management; Financial analysis; Financial management; Financial strategy; Management of crises; Reorganization; Services

HBS

United Kingdom

A

major U.K.-based multinational is reevaluating its

George Chacko;

16p

consumer goods,

leverage policy as it restructures its business. The

Peter Tufano;

201033

food, drinks

treasury team models the tradeoffs between the benefits and costs of debt financing, using Monte Carlo simulation to estimate the savings from the

Joshua Musher

$12 billion

TN available

revenues

2000

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

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

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. Subjects: Capital structure; Consumer goods; Debt management; Financial strategy; Food; Models; United Kingdom

HBSP

France, heating,

In

March 1990, Baring Capital Investors faced a

295150

500 employees,

decision about whether and how much to bid for

Lisa Meulbroek

12p

1990

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. Students have an opportunity to value Acova using the flows-to-equity technique, as well as to evaluate the merits of this technique relative to the valuation methodologies typically used by buyout firms. Subjects: Acquisitions; Capital structure; Corporate control; Divestiture; Europe; France; International business; International finance; Leveraged buyouts; Mergers & acquisitions; Project evaluation; Valuation

TN available

HBS

N/A

Contains common-size balance sheets and financial ratios for ten companies, each representative of a different industry. Students are asked to identify the industries from the structure of the financial statements. Teaching Purpose: Gives students practice in using financial ratios and helps develop an understanding of the factors that drive the financial structure of firms. Subjects: Capital structure; Financial analysis; Financial ratios; Financial reporting

3p

201039

TN available

Chapter 17 Valuation and Capital Budgeting for the Levered Firm

 

HBS

2001

A

video rental store is considering home delivery

3p

services. Management attempts to value the project

201094

under different financing strategies and methods, specifically adjusted present value (APV) and weighted average cost of capital (WACC). Teaching Purpose: Shows how to implement APV and WACC and when each is appropriate. Subjects: Capital budgeting; Capital investments; Cash flow; Debt management; Financial strategy; Financing; Present value; Valuation

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

HBS

N/A

Uses a numerical example to demonstrate that when you discount the cash flows to capital from a project

4p

202128

at the weighted average cost of capital, you get same net present value result as you obtain when discounting the cash flows to equity at the cost of equity. Also demonstrates why it is far easier to do a net present value calculation using the weighted average cost of capital (assuming a fixed debt ratio and market value weights) than it is to do the same calculation using the cost of equity. Subjects: Capital costs; Cash flow; Equity capital

Cross-Border Valuation (HBS background note) Kenneth A. Froot W. Carl Kester

HBS

N/A

Provides a review of valuation techniques used to assess cross-border investments. Discusses the

21p

295100

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. Subjects: Capital costs; Foreign exchange; Foreign exchange rates; International finance; Present value; Valuation

HBS

West Coast & Alaska

Pioneer is an integrated oil company. Its operations include exploration and development, production,

5p

Richard S.

292011

petroleum products $15.6 billion revenues

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

Ruback

TN available

1991

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. Subjects: Capital budgeting; Capital costs; Petroleum

HBS

hotels and

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. Subjects: Capital costs; Hotels & motels

10p

restaurants

289047

1988

TN available

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

Chapter 18 Dividend Policy: Why Does It Matter?

 

HBS

New York, NY beauty products

Avon Products announced both a change in its business focus and a reduction of its dividend in June

Jonathan

9p

Tiemann

289049

$2.5 billion sales

1988. To offset the likely stock price effect of the

TN available

1988

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. Subjects: Cosmetics; Diversification; Dividends; Non-store retailing; Securities; Valuation

Dividend Policy at FPL Group, Inc. (A) Benjamin C. Esty Craig F. Schreiber

HBS

Florida

A

Wall Street analyst has just learned that FPL (the

17p

electric utility

holding company for Florida's largest electric utility)

295059

$5.3 billion

may cut its dividend in several days despite a 47-year streak of consecutive dividend increases. In response

B case

revenues

available

1994

to

the deregulation of the electric utility industry,

TN available

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. Subjects: Corporate strategy; Deregulation; Dividends; Electric power; Financial strategy; Securities analysis

HBS

St. Louis, MO shoe retailing

In 1995, the Board of Directors of Brown Group, Inc. was confronted with a dilemma: over a decade

15p

 

396265

1995

of

strategic restructuring, the board had maintained a

Dividend Decision Joseph L. Bower

steady dividend. Now the restructuring was complete, but a collapse of the U.S. retail scene hurt sales and profits. Was the strategy still valid? Cash flow from restructuring was over. Should the dividend be cut? Wouldn't that reflect on the strategy? Teaching Purpose: To provide a basis for discussing the relationship between corporate financial policies and strategic management. In particular, to examine the role of Wall Street and shareholders. Subjects: Board of directors; Corporate strategy; Dividends; Restructuring; Retailing

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

HBS

Brentwood, TN bicycles and power mowers $384 million sales

After a record year in 1983, Murray Ohio's earnings declined in 1984. The company was faced with competition from cheap imports and was experiencing declining margins. Students are asked

27p

Co.

187178

Krishna G.

TN available

Palepu

1985

to analyze the company's 1984 financial statements and predict whether there is likely to be a change in the dividend policy. Subjects: Competition; Dividends; Financial analysis; Manufacturing

HBS

Dearborn, MI

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

17p

automobiles

201079

$162 billion

 

B case

revenues

Plan (A) Andre F. Perold

available

2000

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 signal a change in the company's appetite for making acquisitions or future capital expenditures? If shareholders collectively elected to receive less than $10 billion in cash, how would Ford distribute the remaining cash? Teaching Purpose:

Provides a rich setting in which to discuss one of the most basic decisions corporations face: how to return cash to shareholders. It is a vehicle for discussing corporate financial policies and capital structure decisions--particularly as they relate to cash dividends and share repurchases--in a context where corporate control questions and the interests of multiple constituencies must be understood. Subjects: Automobile industry; Capital structure; Cash flow; Dividends; Financial strategy; Stockholders; Stocks; Taxation

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

Chapter 19 Issuing Securities to the Public

 

Kendle International, Inc. Dwight B. Crane Paul W. Marshall Indra A. Reinbergs

HBS

Cincinnati, OH

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

25p

contract research

200033

$13 million

TN available

revenues

1997

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. Subjects: Acquisitions; Bank loans; Entrepreneurial finance; Financing; Growth strategy; IPO; Pharmaceuticals industry; Stock offerings

U. of Hong Kong

Hong Kong

On February 18, 2000, month-old Internet startup, Tom.com, began its initial public offering and would open for trading on March 1 on Hong Kong's Growth

Su Han Chan Ko Wang Mary Ho

technology

20p

start-up

HKU124

2000

Enterprise Market. The Internet company, majority- owned by Mr. Li Ka-shing's Cheung Kong Holdings and Hutchison Whampoa, planned to catch the frenzy that Hong Kong's investors had for new Internet stocks. The huge demand for Tom.com shares raised Internet frenzy in Hong Kong to new levels reminiscent of the red chip fever of 1997. Many of the retail investors had no idea what the company did but were betting on the IPO being a winner largely because of Mr. Li's clout with China. In this case, the student is asked to serve as an investment advisor to a retail investor considering subscribing to Tom.com's IPO. The student will provide an analysis of the risks and opportunities of investing in Tom.com and make a recommendation on whether the client should buy Tom.com's shares at the offer price. Teaching Purpose: Intended to highlight the complexity of pricing Internet stocks that rarely have much of a track record for investors to study and the irrational investing behavior of Hong Kong's small investors.Subjects: Asia; Internet; IPO; Stock offerings; Technology

 

TN available

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

HBS

San Francisco, CA

OpenIPO is a new mechanism for pricing and distributing initial public offerings. The system,

+

 

18p

finance

 

200019

100

which is based on a Dutch auction, represents an

Andre F. Perold; Gunjan Bhow

1999

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. Subjects: Capital markets; Electronic commerce; Investment banking; Investment management; IPO; Stock exchanges; Stock offerings; Underwriting

A

 

HBS

N/A

Provides an overview of the going public process. Subjects: Entrepreneurial finance; Equity financing;

6p

200018

Financial strategy; IPO; Venture capital

Joshua Lerner

 
 

HBS

Buenos Aires,

In 1998, BAESA, PepsiCo's largest bottler and distributor outside North America, experienced

 

27p

Argentina, Brazil

202009

soft-drink beverage

severe financial difficulty and had to restructure its

A

manufacturing &

debt and business operations to avoid bankruptcy or liquidation. Based in Argentina, with operations throughout South America, the company had for years been a spectacular success story and media

 

distribution

$700 million

Stuart C. Gilson Gustavo A.

 

revenues

1998

darling, until it undertook an ill-fated expansion in Brazil. The company's debt was owed to banks and financial institutions in South America, Asia, Europe, and the United States. In addition, the company had $60 million of publicly traded bonds, much of them held by U.S. investors. The restructuring was the largest and most complicated undertaking of its kind ever taken in South America. In addition to negotiating with its bankers and making a public exchange offer for its bonds, the company made a massive common stock rights offering to its shareholders, giving them the opportunity to purchase new stock in the company. It also considered filing a "prepackaged" Chapter 11 bankruptcy in the United States to pressure U.S. bondholders to go along with the plan. The negotiations were greatly complicated by differences in the bankruptcy laws of Argentina, Brazil, and the

Herrero

 

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

United States. Teaching Purpose: To illustrate how distressed companies choose between formal legal bankruptcy and informal out-of-court restructuring as alternative strategies for restructuring their debt. Also shows how an "exchange offer" can be used to restructure widely held public bonds. The company's attempt to use a common stock rights offering also provides a real-world example of the "underinvestment problem" in corporate finance. Finally, shows what kinds of factors (conflicts among different countries' bankruptcy laws, inter- creditor conflicts, information problems, etc.) can complicate, and potentially disrupt, a debt restructuring. Subjects: Acquisitions; Bankruptcy; Beverages; Financial management; Multinational corporations; Reorganization; Restructuring; South America; Valuation

General Property Trust Peter Tufano; John C. Handley

HBS

Australia real estate trust

In 1994 General Property Trust, an Australian property investment trust, was anticipating future

11p

299098

$AS 110 million net income

cash needs beyond those that the Trust could fund with internal cash flows. The managers of the Trust

 

1994

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. Subjects: Derivatives; Financing; Hedging; Options; Real estate; Real estate investment; Risk management; Trusts

HBS

N/A

Discusses the economics of the private equity market and recent efforts by the U.S. Small Business

11p

298083

Administration to promote greater angel financing. Subjects: Capital markets; Entrepreneurial finance; Financing

Chapter 20 Long-Term Debt

   

HBS

Greenwich, CT

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

14p

tobacco

200069

$1.4 billion

 

TN available

revenues 1999

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

program. Teaching Purpose: Introduction to optimal capital structure with emphasis on calculation of interest tax shields. Subjects: Capital structure; Debt management; Long term financing; Taxation; Tobacco industry

Cox

HBS

Atlanta, GA

Covers the decision of how much external financing

18p

communications

a

firm needs and what securities the firm should

201003

$1.8 billion

issue to raise this financing. Cox Communications is

George Chacko;

TN available

revenues

a

major player in the cable industry, which is

Peter Tufano

1999

consolidating due to technological changes/capabilities brought about by the Internet.

The corporate treasury of Cox Communications needs to decide how much external financing is necessary to finance a series of intra-industry

acquisitions that Cox has recently undertaken. The choices are plain-vanilla equity, debt, asset sales, and

a

new equity-linked derivative known as FELINE

PRIDES, offered by Merrill Lynch. The treasurer and his team must make this decision facing the usual market constraints. There are also some special constraints including the need to maintain financial flexibility for further acquisitions and the need to limit the dilution of Cox's largest shareholder, who

owns nearly 70% of the firm. Teaching Purpose:

How to make long- and short-term financing decisions, taking into account specific business conditions and risk. Subjects: Capital structure; Communications industry; Debt management; Innovation; Long term financing; Securities; Short term financing

HBS

Boston, MA/Los Angeles, CA life

The manager of a money-management firm considers whether to invest in the securities of a large, financially troubled, California-based life insurance holding company that holds 40% of its

19p

296032

insurance $2 billion revenues

 

TN available

Harry DeAngelo Linda DeAngelo

1991

assets in high-yield junk bonds. Over the past year, the value of its junk bond portfolio has declined significantly. The insurer is seeking a large infusion of capital from its largest (28%) shareholder--a New York-based investment bank--that is experiencing financial difficulties of its own. Within the last month, another large California-based insurance company that also invested heavily in junk bonds is seized by regulators following a "run on the bank" by concerned policyholders, and the State Insurance Commissioner has publicly announced his intention to "crack down" on abuses in the insurance industry. Teaching Purpose: To evaluate the risks and rewards associated with investing in the financial claims of distressed companies; to understand the factors that

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

give rise to a "bank run" on a bank or insurance company; to analyze regulators' incentives to seize a troubled financial institution; and to weigh the pros and cons of mark-to-market accounting by regulated financial service firms. Subjects: Bankruptcy; Insurance; Regulated industries; Securities analysis; Valuation

Cougars Scott P. Mason Mihir Desai

HBS

N/A

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. Subjects: Bonds; Innovation; Interest rates; Pricing

6p

295006

 

TN available

Chapter 21 Leasing

   

HBS

United States

PPL Corp., an electric utility in Pennsylvania, needs to finance $1 billion of peaking plants as part of its

25p

utilities

202045

$5.7 billion

new growth strategy. In February 2001, Steve May, director of finance for PPL's Global Division, is

 

revenues

Benjamin C. Esty Carrie Ferman

2001

responsible for recommending a finance plan. After considering all the options, May decides that a synthetic lease is the best option, but he must decide whether to recommend a traditional or a limited recourse synthetic lease and how to structure the specific terms. The limited synthetic lease, in contrast to the traditional structure, requires a smaller corporate guarantee on the assets and has greater off- credit treatment, which is important given the company's growth strategy and limited debt capacity. However, finding investors willing to accept greater project risk will cost more and take more time. The timing is an important issue for May. Teaching Purpose: 1) Shows how corporate financial managers today must be familiar with and ready to use a wide range of financing techniques, including corporate finance (bank loans and corporate bonds), project finance, asset securitization, and leasing; 2) describes various leasing structures (operating leases, capital leases, leveraged leases, and synthetic leases) and the motivations for using them; and 3) explores the advantages and disadvantages of two kinds of synthetic leases--the traditional and the limited recourse--and asks students to select the more appropriate one given PPL's high-growth strategy. Subjects: Accounting standards; Buy or lease decisions; Deregulation; Earnings; Financial strategy; Leasing; Project finance; Utilities

HBS

United States

Amid mounting concern by credit agencies about off-balance sheet liabilities, an analyst for one of the

15p

restaurant

101033

1999

leading credit-rating agencies has been asked to

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

Industry Amy P. Hutton Paul M. Healy Jacob Cohen

   

make a presentation about off-balance sheet liabilities, the strategic analysis behind leasing versus purchasing property, and accounting for leases. Subjects: Financial ratios; Financial statements; Leasing; Restaurants

Kmart, Inc. and Builders Square Lisa Meulbroek Jonathan Barnett

HBS

United States

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 purchase a 28% stake in the

25p

building supplies

200044

retailing

TN available

$2.5 billion

 

revenues

1997

new entity in the future, and the assumption of approximately $1.5 billion in non-cancelable Builders Square lease obligations. Kmart would remain contingently liable for the lease payments if the new entity were to fail. In the midst of the fiercely competitive home improvement retail industry, the questions posed include: 1) what is the value of the Builders Square subsidiary? 2) is the Green offer a good deal for Kmart? and 3) should Kmart accept the offer or hold out for a higher offer or additional buyers? Teaching Purpose: To incorporate off-balance-sheet financing of operating lease guarantees into a valuation exercise (using multiples and the APV approach) focused on a money-losing subsidiary. Subjects:

Building materials industry; Capital structure; Corporate reorganization; Debt management; Discount department stores; Divestiture; Leasing; Liability; Options; Restructuring; Valuation

HBS

N/A

Provides an overview of venture leasing, an innovative financing mechanism that resembles both

13p

294069

venture equity investments and bank lending. Subjects: Entrepreneurial finance; Financial planning; Leasing; Venture capital

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Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

 

Stanford GSB

United States

Discusses the decision of whether to lease or buy aircraft at Aloha Airlines in Hawaii. Subjects: Airlines; Capital budgeting; Capital costs; Financing; Leasing

15p

airline

F240

Chapter 22 Options and Corporate Finance:

 

Basic Concepts And Chapter 23 Options and Corporate Finance:

Extensions and Applications

 

HBS

United States,

In

early 1997, Cephalon, Inc. awaited an FDA

Peter Tufano

298116

biotech, 1997

panel's decision on whether its drug, Myotrophin,

Geoffrey Verter

18p

would be approved. If the drug was approved, the firm might need substantial additional funds to

Markus F.

Mullarkey

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. Introduces students to the use of equity derivatives as part of a risk management strategy, examines the application of cash-flow hedging in a corporate context, and examines the pricing of a derivative security with large jump risk. Subjects:

Biotechnology; Derivatives; Financial strategy; Hedging; Options; Risk management

 

HBS

North America,

A

closed-end mutual fund's decision to study option

295096

investment, 1994

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. Subjects: Derivatives; Investment management; Mutual funds; Option pricing; Risk management; Securities

 

5p

Strategies W. Carl Kester

TN available

HBS

California,

A

group of investors is considering buying the sequel

292140

movies, 1992

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

19p

Timothy A.

TN available

Luehrman;

William A.

Teichner

Harvard Business School Publishing 800-545-7685 (Outside the U.S. and Canada 617-783-7600) custserv@hbsp.harvard.edu www.hbsp.harvard.edu/educators

Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

     

illustrates the practical limitations of such techniques. Subjects: Capital budgeting; Decision trees; Entertainment industry; Option pricing; Real options; Securities analysis; Uncertainty

Chapter 24 Warrants and Convertibles

 
 

HBS

Global

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. Subjects: Capital markets; Hedging; Investment banking; Product design; Product introduction; Securities

16p

investment banking

292113

1989

TN available

Peter Tufano

 

Coca-Cola Harmless Warrants Scott P. Mason; Mihir Desai

 

HBS

United States

Underscores the arbitrage implicit in the pricing of a complex unit of debt and warrants issued by the Coca-Cola Co. Subjects: Beverages; Bonds; Innovation; Pricing

4p

beverages

295007

Fortune 500

TN available

GetConnected Jay O. Light Dan J. Green

 

HBS

Boston, MA,

An embryonic Internet-based telecom marketing firm

17p

telecommunica-

considers its first (seed) round of funding. They are

201010

tions

choosing between a fixed price round and a discounted convertible round. Teaching Purpose: To

   

2 employees

1999

discuss fixed price vs. floating price seed financing. Subjects: Financing; Internet marketing; Telecommunications; Venture capital

 

HBS

United States

The manager of a small company growth fund considers relative merits of investing in a company's convertible debt versus its common. Subjects: Investment management; Mutual funds; Portfolio management

24p

money

Ronald W.

292107

management

Moore

TN available

small

Chapter 25 Derivatives and Hedging Risk

 
 

HBS

N/A

Provides an elementary introduction to three major classes of derivative instruments: options, forwards

23p

295141

and futures, and swaps. Subjects: Commodity markets; Derivatives; Securities

Harvard Business School Publishing 800-545-7685 (Outside the U.S. and Canada 617-783-7600) custserv@hbsp.harvard.edu www.hbsp.harvard.edu/educators

Harvard Business School Publishing Case Map for Ross, Westerfield & Jaffe: Corporate Finance , 6

Harvard Business School Publishing

Case Map for Ross, Westerfield & Jaffe: Corporate Finance, 6 th Edition (McGraw-Hill, 2002)

Backstrand

     

Futures on the Mexican Peso Kenneth A. Froot Matthew McBrady; Mark Seasholes

HBS

Mexico/U.S.,

The Chicago Mercantile Exchange needs to decide

296004

financial services,

how to design, and whether and when to introduce, a

22p

1995

futures contract on the Mexican peso.

Subjects: Commodity markets; Country analysis; Foreign exchange rates; International finance; Mexico; Money; Money markets