Ameritrade Holding Corp. is planning large marketing and technology investments to improve the company's competitive position in deep-discount brokerage by taking advantage of emerging economies of scale. In order to evaluate whether the strategy would generate sufficient future cash flows to merit the investment, Joe Ricketts, chairman and CEO of Ameritrade, needs an estimate of the project's cost of capital. There is considerable disagreement as to the correct cost of capital estimate. A research analyst pegs the cost of capital at 12%, the CFO of Ameritrade uses 15%, and some members of Ameritrade management believe that the borrowing rate of 9% is the rate by which to discount the future cash flows expected to result from the project. There is also disagreement as to the type of business that Ameritrade is in. Management insists that Ameritrade is a brokerage firm, whereas some research analysts and managers of other online brokerage firms suggest that Ameritrade is a technology/Internet firm. To obtain executable spreadsheets (courseware), please contact our customer service department at [email protected].
In March 2000, the board of The Harvard Management Co. (HMC) approved significant changes in the policy portfolio determining the long-run allocation policy of the Harvard University endowment. These changes included a sharp reduction of the allocation to U.S. equities and U.S. nominal bonds and a significant investment in the new U.S. Treasury Inflation-Protected Securities (TIPS). This case focuses on the analysis that led HMC management to recommend such changes to the board.
This case invites students to estimate the costs of a new debt issue. Designed as an introductory case for use early on in an MBA course, it requires students to compute the yield-to-maturity on the WorldCom bonds from price data and from spreads over Treasury securities for bond-rating categories. The exercise allows for discussion of benchmarking in the context of credit markets.
The Canadian Imperial Bank of Commerce (CIBC) is a large Canadian financial institution with seven million customers. This three-case series outlines the challenges faced by the bank in designing and implementing a customer profitability management system. The vice-president of strategy development, personal & commercial banking, received approval to develop a customer profitability system. The system would help to determine: who were the bank's profitable customers, how to acquire and retain those customers, and how to change behavior to convert unprofitable customers or make profitable customers more so. There were accounting, business and technology issues to be resolved. The supplemental (B) and (C) cases (products #9B00B015 and 9B00B016), follow through by examining how the data on the system could provide the bank with a competitive advantage, and the challenges of implementing the system.
With the development of the customer profitability system complete, the product and marketing groups of the Canadian Imperial Bank of Commerce now needed to address how to improve customer profitability, one customer at a time, by examining new market segmentation and identifying new sales opportunities. Issues they had to resolve were: what to do with customers who were not profitable, who should have access to the data, how to use the data to gain competitive advantage over the competition and what changes should be made to the compensation system so it is aligned with the company's sales focus. This is the second of a three-case series that follows the design and implementation of a customer profitability system at a large Canadian financial institution. The (A) and (C) cases are product #9B00B014 and 9B00B016 respectively.
With a new customer profitability system now developed at the Canadian Imperial Bank of Commerce (CIBC), the next challenges involved the rollout to the branches and the associated implementation problems. To prepare for a meeting with her staff, a regional sales manager discussed the new customer profitability system, named Managing Local Markets, with a sales leader from one of the pilot branches. Her feedback on the system was generally very positive; however, the people using the system in the branch didn't understand how the profitability was calculated; this jeopardized the credibility of the system. This is the third case of a three-case series. The (A) and (B) cases are products #9B00B014 and 9B00B015.
Canadian Closures was a joint venture (JV) between the Australian firm, Melbourne Closures (Melbourne), and Macklin Breweries (Macklin) which was based in Canada. The JV manufactured beer bottle caps based on Melbourne's technology; its only customer was Macklin's 10 breweries. Continuing product quality and performance problems resulted in the general manager being replaced. The new general manager was faced with the challenge of resolving these issues and balancing what was best for the parent companies in the short-term and what was best for the JV in the long-term. Macklin wanted reimbursement for faulty caps, which would have a significant impact on the profit objectives that both parent companies expected the JV to meet. The general manager had to find a solution that would satisfy both parent companies while minimizing negative impacts on the JV's results. The supplemental case, Canadian Closures (B), product 9B00M020, presents what happened and addresses another challenge later in the JV's life cycle.
An associate director at Scotia Capital Markets must make a recommendation to his client, Empire Company Limited (Empire), regarding a possible bid for rival Oshawa Group Limited (Oshawa). Both companies are in the food retail and wholesale business. Empire was based in Atlantic Canada, with an expanding presence in Ontario and Quebec, while Oshawa competes on a national basis. There were increasing public signals and rumors that suggested that Oshawa's controlling shareholders (the Wolfe family), might be willing to entertain an offer for the company. To get a clearer picture of the value of the company, the associate director performed a discounted cash flow analysis and comparable analyses to determine the stand-alone and synergy values of the acquisition target. He also had to consider the methods of financing the acquisition and examine the effect of the ownership structure on the market for corporate control.
This explores the valuation of an opportunity to license a compound before it enters clinical trials. Describes Merck's decision tree evaluation process is presented. Information required to evaluate a specific licensing opportunity is provided, including the costs of the three phases of the review process, the revenues if approved, and the probability of various outcomes. It includes an introduction to decision tree analysis and valuation.
In July 2000, two founders of this new Web-hosting company are contemplating raising $5 million to $15 million in a second-round financing from venture capitalists. The task for the student is to forecast the firm's cash receipts and disbursements in an effort to determine the firm's "burn rate," i.e., the rate of cash consumption and how long the financing will sustain the firm. The new economy setting of this case permits the instructor to extend well-known financial skills and concepts to an industry that attracts high student-interest. This case is ideally used in an introductory finance course as an early exercise in forecasting, modeling, sensitivity analysis, and interpretation. It can be a useful foundation for later classes in cash-flow estimation and valuation. This case presumes that the students have already been exposed to the structure and interpretation of the statement of cash flows (SOCF), and the relationship of the SOCF to the income statement and balance sheet. The case also may offer opportunities for interdisciplinary teaching with instructors in marketing and entrepreneurship.
This case recounts the announced terms of five prominent acquisitions of the late 1990s, and asks the student to suggest a preliminary strategy for integrating the target firm into the buyer. The five acquisitions are America Online/Time Warner, British Petroleum/Amoco, Daimler-Benz/Chrysler, Union Pacific/Southern Pacific, and Warner-Lambert/Agouron Pharmaceuticals. The objectives of the case are: 1) to highlight the linkage of the post-merger integration approach with the strategic motives for the acquisition; 2) to consider the range of possible challenges to successful post-merger integration; 3) to explore the varieties of integration strategy, especially surrounding decisions about autonomy of the target company within the buyer, importance of interdependence between the buyer and target, and need for speed of integration.
The owner of a successful restaurant was approached by his landlord to re-open a restaurant he used to have, the Paragon, under extremely attractive lease terms. He had been considering suggestions from his head waiter that the two of them open a restaurant together, but had not heard of any appealing options until this recent offer. While he knew this was a good offer, he wanted to lay out a precise business plan and thoroughly assess the potential costs of reopening and running the Paragon before making any commitments. Moreover, he strongly questioned whether the income from a second restaurant would be enough to outweigh the stress and risk related to getting involved with an inexperienced partner.
On August 11, 1998, United States' Amoco Corp. (NYSE: AR) and the British Petroleum Co. (BP) 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 premerger plans had very different investment structures. Whereas 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 integrate them into one single structure.
Brazil's media conglomerate Editora Abril S.A. is Latin America's largest publishing and printing company; it publishes books, and comic books, videos, maps, travel guides, music, and textbooks. It also owns Brazil's largest database marketing company, its second-largest pay television service, and its first broadband Internet access service; an interactive music Website; and stakes in the coutry's largest Internet access provider and its MTV license. Roberto Civita, Abril's 64-year-old chairman, CEO, and sole owner needs to decide how to grow the enterprise that his father founded. He and his two sons have several options: continue to grow their core magazine business in Brazil, expand regionally, invest in new venues such as broadcasting, take the company public, and/or manage the succession. This case describes Abril's development to date and the challenges it faces in 2000.
The president of a small consulting firm has just seen his second-quarter profit and loss statement, showing an increase in revenues but a substantial decline in profits. He asks his chief financial officer to explain the results. The CFO works hard to accumulate information to explain the impact of the quantity of billed hours, billing rates, consultant expenses, operating expenses, and the shifting mix of business between the two principal product lines.
Facilitates the teaching of cases on variance analysis and flexible budgeting. Uses algebra, diagrams, and numerical examples to illustrate the calculation of price, quantity, and mix variances for revenues and costs, and a flexible budget for analyzing indirect and support costs.