Case Studies and Learning Outcomes:

Z-factor :

Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

Likely hood of bankruptcy or insolvency

Where:

A = working capital / total assets, B = retained earnings / total assets, C = earnings before interest and tax
/ total assets, D = market value of equity / total liabilities, E = sales / total assets

Value-Line:

Retail building supplying industry. Between two firms, Lowe’s and Home depot, impacts of different
results, acquisitions, mergers, professional markets, international expansion, online stores, alternative
products, effects on forecasts.

Body Shop:

T-forecasting, percentage of sales forecasting, iteration, interest as % of debt, negative debt case,
balance sheet forecast.

GUNA Fibers:

Profitable company but needed loads of cash, long ccc, had to rely on banks for loans, overdrawn bank
account, competition on credit sales provided to sari makers, was against overstocking so lays off
happened a lot, need to change dividend payments, currently 500000.

Bill Miller:

• Is it pure luck that Value Trust has been able to achieve such high returns or does strategy play a
part?

• Should you invest in the fund or not?

S&P 500 ratings, checking returns and analysis of return.

Best Practices:

Best methods to find cost of capital because portfolio diversification, market efficiencies, and asset
pricing impacts it a lot. 93% use WACC. Formula, values should be market, debt cost , should be after tax
cost of debt, telephonic surveys, return on market portfolios, a+ br – a is regression constant for stock i,
risk free rate should match the tenor of the cash flows to be values, treasury bills time

Nike Case Study:

Valuation using DCF, DDM, decision making, WACC calculation.

Investment Detective:
Valuing Projects, 5 methods, mutually exclusive, cross over rate

Aurora Textiles:

Should buy the new machine Zinser? Will improve operating efficiency but have associated costs

Hurdle rate-10%

Losses, share price decrease 30 to 12, buying new machine is useful but from where to fund, debt
financing causes less NPV than no debt, but they have to take debt, NPVs 15M, 7M.

Star River Electronics:

Financial condition, debt requirement, packaging plant now or after 3 years.

Interest coverage ratio, more than 2.5, can pay the debt, proxy values, three types of debt, NPVs of
packaging plant for now and after three years.

Dell’s WC:

Low inventory, build to order, work in process 10-20%, industry 50-60%,low holding cost, easy to shift to
new technology, more cash, Formulas to calculate net working capital

CCC= DSI+DSO-DPO

Structuring Corporate Financial Policy:

How much ratio of each source of capital should be added, different sources, maturity dates, coupon
payments and dividends, external control, distribution of securities and values to stakeholders, exotica,
does it create value, competitive edge, tax benefits,

Investor view, competitor view, internal view of factors to be included.

Wrigley Junior:

 Will a leveraged recapitalization increase shareholder value for investors?

 Should the strategy be used to fund a share repurchase or be distributed as dividends?

 How will this strategy affect Wrigley’s shares, book value of equity, price per share of stock,
earnings per share, debt interest coverage ratios and financial flexibility, and voting control?

Deluxe Corp:

Printing checks, concentrated industry, first diversified then returned to original strategy, Rajat Singh’s
recommendations, how much debt can they take for each rating, capitalization ratio, impact of debt
level on ratings, excess debt

Need to fill CAPEX requirements and working capital needs, for short term financing line of credit,
commercial paper, whether need to diversify or not, stock repurchase or dividends payout, wanted to
keep wacc low, financial forecast done. In the end, ended up diversifying.

Primus Auto:
 Decide the terms under which Primus would lease one of its advanced systems costed $715,000 to
Avantjet Corporation.

Primus unfamiliar with the actual workings of leasing arrangements

Required this deal in order to make

retain customers with increasing
sales budget for the year, salvage their pending purchase
competition and

Gainesboro Machine:

• What is the most effective, efficient and beneficial strategy that Gainesboro Tools Corporation
should adopt in managing the firm’s equity which will balance the needs of the stockholders and
assure the future of the company

• Dividend Payout Policy

• Share Repurchase

• Image advertising and Name change

Valuation of Mergers and Acquisitions:

Careem & Uber, you value company using cash flows and then buy, to eliminate competition, you look
for synergies, calculate their value and then offer amount max till that synergy level and at that point,
your NPV becomes zero. You offer till synergy value added.

American Greetings:

EV/EBIT multiple , Company valuation and 75M repurchase.

Bullish, bearish and Average View+ repurchase happening after 10 months so formula only to calculate
that. Earnings per share changes.

Roche Holding:

Want to acquire genetech, need $42B, 32 from bonds, what should be ytm for different years, and then
what price should it set, currently, 86.

IPO:

First share offering, risks involved, what would be the share price, should they go for public share
offerings. Two WACCS
APV:

Separate effects, without debt, and debt side effects, FTV. Terminal values of side effects as well, APV
gives lesser value than DCF but tell you what amount is the project worth it. Useful when companying is
targeting a specific debt level.

Sun Microsystem:

How much to offer to acquire Sun by oracle?

Calculate share price after synergies, can offer max till that not above that. 9.5$, 11.8$

Mogen:

Black Sholes model, derivatives, hedge funds, conversion premium and coupon rate, convertible
securities, if share price exceed, convert your bonds into shares, 15%, 25%, 40%.

Massey Ferguson:

Government bailout, workers losing job, you do cost benefit analysis, Refinancing plans, biggest investor
not giving, have short term debt, alarming for big companies. Currency rate issues, cost high in pounds,
interest rate highs, duties and political situations in 3rd world countries.