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As equity-linked consideration has become more popular in acquisition and alliances, so has the use of the "price-protection" mechanisms, known variously as floors, caps, and collars. In general, these are contractual agreements that provide insurance to the shareholders of the selling firm, the buying firm, or both.

Explains the equity cash flow method of valuation as it applies to leveraged buyouts. Also explains: 1) earnings and cash flow forecasts, 2) debt structure and the cash sweep, 3) the cashing out horizon and terminal valuation, and 4) the target IRR method of valuation.

Explains the equity cash flow method of valuation as it applies to leveraged buyouts. Also explains how to implement the changing cost of equity method using the CAPM.

Throughout 1999, PepsiCo closely tracked several potential strategic acquisitions. In the fall of 2000, it appeared that the right moment for an equity-financed acquisition had arrived. At this time, PepsiCo management decided to initiate confidential discussions with The Quaker Oats Co. about a potential business combination. Gatorade, a key brand in Quaker's portfolio, had long been on PepsiCo's wish list, but PepsiCo's managers, led by CEO Roger Enrico and CFO Indra Nooyi, were committed to upholding the value of PepsiCo's shares and, as a result, were determined not to pay too much for Quaker. This case provides information that allows students: to assess the value of Quaker's businesses, estimate potential synergies associated with a Pepsi-Quaker merger, and come up with an effective negotiation strategy.

A technical note that defines capital expenditures (CAPEX).

A technical note that defines advantage horizon.

A technical note that defines short- and long-term growth rates and the growth horizon.

A technical note that defines free cash flow (FCF).

A technical note that defines return on invested capital (ROIC).

A technical note that defines earnings.

The purpose of this series of notes is to define the key "drivers" of the fundamental value of equity and to illustrate how these drivers determine the future cash flows and the "present value pattern" of the underlying common stock. The series includes one technical note for each term defined. The terms defined are as follows: invested capital (IC), capital expenditures (Capex), earnings, return on invested capital (ROIC), free cash flow (FCF), short- and long-term growth rate and the growth horizon, and advantage horizon. This is a short introductory note to the series.

Modularity is a familiar principle in the computer industry. Different companies can independently design and produce components, such as disk drives or operating software, and those modules will fit together into a complex and smoothly functioning product because makers obey a given set of design rules. As businesses as diverse as auto manufacturing and financial services move toward modular designs, the authors say, competitive dynamics will change enormously. Leaders in a modular industry will control less, so they will have to watch the competitive environment closely for opportunities to link up with other module makers. They will also need to know more: engineering details that seemed trivial at the corporate level may now play a large part in strategic decisions. Leaders will also become knowledge managers internally because they will need to coordinate the efforts of development groups in order to keep them focused on the modular strategies the company is pursuing.

An example of how policies about budgeting and resource decisions are commonly misallocated is presented.

Allows students to use an alternative method to analyze the case.

Walt Disney Co. issues a 100-year bond. This case describes the terms of the bond and immediate capital market reaction.

Walt Disney Co. issues a 100-year bond. This case describes the terms of the bond and immediate capital market reaction.

George Hatsopoulos, CEO at Thermo Electron Corp., is considering whether to issue shares in a subsidiary via an initial public offering (IPO). The company has developed an unusual corporate structure in which subsidiaries fund new ventures by raising debt and equity in the capital markets, rather than through the parent company.

Spreadsheet Supplement for case 292104.

An integrated sequence of three cases on the financing of a technical workstation manufacturer. This case focuses on Sun's competitive strategy which requires an inordinately high rate of growth (over 20% per quarter) and commensurate amounts of working capital. Students are asked to evaluate the importance of access to capital for the company and decide whether Sun should rely on the public equity markets or seek funding from a corporate partner.

Outlines the financing agreement reached by Sun and AT&T in early 1988.