QUESTIONSCASE1:

1. Calculatethefinancialratiosforeachcompany.
2. DoComparisonsamongindustries

QUESTIONSCASE2:
1. Beforedoinganycalculations,canweranktheprojectssimplybyinspectingthecash
flows?
2. What analytical criteria can we use to rank the projects? How do you define each
criterion?Putthenumbersupontheboard.
3. Whichofthetwoprojects,7or8,ismoreattractive?Howsensitiveisourrankingtothe
useofhighdiscountrates?WhydoNPVandIRRdisagree?
4. What rank should we assign to each project? Why do payback and NPV not agree
completely? Why do averagereturnoninvestmentandNPVnotagreecompletely?
Whichcriterionisbest?
5. ArethoseprojectscomparableonthebasisofNPV?Becausetheprojectshavedifferent
lives,arewereallymeasuringthenetpresentvalueoftheshort

QUESTIONSCASE3:
1. WhywouldacompanylikeTheBodyShopwantstoforecastitsfinancialstatements?
2. Dothethreeyearforecasts:Howdidyouprepareyourforecastandwhatnumbersdid
youget?
3. HowmuchdebtfinancingwillTheBodyShopneedoverthisforecastperiod?Whatare
thekeydriversofthisneed,andhowmuchdodebtneedsvaryastheassumptionsvary?
4. WhatissuesdoesthisanalysisraiseforRoddick?

QUESTIONSCASE4:
1. WhatistheWACCandwhyisitimportanttoestimateafirmscostofcapital?Doyou
agreewithJoannaCohensWACCcalculation?Whyorwhynot?
2. IfyoudonotagreewithCohensanalysis,calculateyourownWACCforNikeandbe
preparedtojustifyyourassumptions.
3. CalculatethecostsofequityusingCAPM,thedividenddiscountmodel,andtheearnings
capitalizationratio.Whataretheadvantagesanddisadvantagesofeachmethod?
4. WhatshouldKimiFordrecommendregardinganinvestmentinNike?

QUESTIONSCASE5:
1. Pleaseidentifythestrengthsandweaknessesofthevariousmeasuresofinvestment
attractivenessasusedbyEurolandFoods.Willallofthemeasuresranktheprojects
identically?Whyorwhynot?
2. Pleaserankthe11proposalsonthebasisofpurelyeconomicconsiderations.Thenrank
themasecondtimebasedonanyotherconsiderationsthatyoubelieveareimportant.
Aretherankingsidentical?Whyorwhynot?
3. WhichsetofprojectsshouldWilhelminaVerdinrecommendtotheboardofEuroland
Foodsforthecapitalbudgetfor2001?

QUESTIONSCASE6:
1. WhatisanIPOandwhyisitsuchabigdeal?IsthisagoodideaforJetBlue?
2. WhatdoyouthinkJetBluestockisworth?
3. Does the financial forecast in case Exhibit 13 seem reasonable? What are the key
assumptions?Isthelengthoftheforecastperiodreasonable?
4. Whatdiscountrateisappropriateforthecashflowforecast?
5. What wasyourapproachforterminalvalue?Howdoyourterminalvalueassumptions
affecttheestimatedvalueofJetBlueshares?

QUESTIONSCASE7:
1. WhyisPrimusAutomationconsideringtheleaseofitsfactoryautomationsystemto
Avantjet?
2. HowdidTomBaumannanalyzetheproblemofsettingtheleasefinancingterms?How
doeshecalculateNPVandinternalrateofreturn(IRR)fortheleaseandborrowandbuy
alternatives?PleasecompletecaseExhibit6.
3. HowareFaulhaberandHonshuHeavyIndustriesusingtheirleasingplans?
4. WhatleasetermsshouldBaumannrecommend?HowshouldPrimusssalesandleasing
divisionsstructurethetermsofthedealwithAvantjet?Howwouldyouapproachthe
negotiationswithAvantjet?

QUESTIONSCASE8:
1. HowimportantisitforMoGentoget$5billionofexternalfundingin2006?Couldthe
companycutbackonitssharerepurchaseprogram,forexample,toreducethefunds
needed?
2. Whataretheprosandconsofissuingconvertibledebtviastraightdebtorequity?
3. Thecasestatesaconvertiblebondcanbevaluedasthesumofastraightbondplusa
calloption.Startingwiththecurrentstockpriceof$77.98pershare,howcanyouuse
theBlackScholesmodeltoestimatethevalueoftheconversionoptionwitha25%
conversionpremiumforoneshareofMoGenstock?Bepreparedtoexplainyourchoice
forthestockprice,exerciseprice,riskfreerate,timetomaturity,dividendyield,and
volatility.Howshouldyouconvertthisoptionvaluepershareintototheoptionvaluefor
abondwith$1,000facevalue?
4. Whatisthevalueofthestraightbondcomponent?WhatcouponrateshouldManaavi
proposeinorderfortheconverttosellatexactly$1,000perbond?Whatdiscountrate
didyouusetovaluethestraightbondcomponent?Conceptually,whatshouldhappento
the coupon rate if Manaavi were to propose a 15% conversion premium? a 40%
conversionpremium?AsMoGensCEO,whatdolikeandnotlikeaboutthisproposal
fromMerrillLynch?Inparticular,doyoulikethe25%conversionpremium?thecoupon
rate?

QUESTIONSCASE9:
1. PleasexplaintheimplicationsofcaseExhibit1(PaigeSimonsfirsttask).Basedonthat
exhibit,isterminalvalueamaterialcomponentoffirmvalues?
2. DrawingoncaseExhibit4andyourowngeneralknowledge,wherewouldthevarious
estimatorsbeappropriate?Wherewouldtheybeinappropriate?(Simonssecondtask)
3. RegardingthecashflowforecastsincaseExhibit5,atwhatpointinthefuturewould
yousettheforecasthorizonforthethreeinvestments?Why?Moregenerally,what
shoulddeterminewhenyoustopforecastingannualcashflowsandestimateaterminal
value?
4. Estimateotherterminalvaluesbasedonalternateestimationapproaches.Fromthese
variousestimates,pleasetriangulatetowardasinglecompositeestimateofterminal
valueforeachofSierraCapitalandArcadiansforecasts.
5. What is the resulting present value (PV) of cash flows under Sierra Capital and
Arcadiansoutlook?