The managing director at a major investment bank is preparing his team for a visit to Lululemon Athletica, a yoga-inspired athletic apparel company. The investment bank has been following Lululemon’s development over the past few years and is impressed by the company’s unique positioning and rapid growth. The bank believes that there is a window of opportunity for Lululemon’s founder and private equity investors to either undertake an initial public offering or raise debt to fund Lululemon’s U.S. expansion.
The chief financial officer of Granite Apparel is trying to determine which of the three fundraising options is optimal for Granite Apparel to finance a projected rapid growth strategy. The three options are an initial public offering of equity, a privately placed debt issue and a private placement of preferred shares.
In August 2009, a portfolio manager for Resolute Funds Inc. is considering adding WestJet Airlines to his fund’s holdings. WestJet, a fast-growing airline based in Calgary, Alberta, has grown rapidly from a start-up to the second-largest airline in Canada. Despite its recent successes, its share price has halved from its high in December 2007, due to the economic crisis. The portfolio manager is trying to determine whether WestJet’s shares are attractive. To support his analysis, he has asked his team to assemble comparative financial data on WestJet and its key competitors. The portfolio manager wants to know if he should buy, hold, or sell WestJet’s shares.
The president of Vancouver-based CFM Attachments Ltd. (CFM) is putting together a management buyout of his company. The president, who has had experience creating and selling a company in a related industry, is trying to determine how to value a potential purchase of CFM from the company's founder. As CFM is a privately-owned company, the president is trying to place a value on the company based on historical financials, a group of comparative firms, and a profit and cash flow forecast by the management team.
The vice-president (VP) and treasurer of TELUS has been asked by the chief financial officer for his opinion on the company's dividend policy and how many recommendations would be conveyed to investors. In developing his response, the VP needs to consider TELUS's future prospects, its leverage policy, the state of the telecommunications industry, and investor expectations. This case facilitates a discussion on dividend policy. Conventional wisdom on dividend policy can be reviewed and then interpreted in the context of the particular circumstances facing TELUS. The case can also facilitate a short discussion on the costs and benefits of share repurchase.
Two MTR Corporation (MTRC) managers are participating in a week-long program in financial management. For their next class, they need to calculate the cost of capital for MTRC. First, they will review the concepts of investor expectations and cost of capital. Then, they must calculate the cost of capital by using the financial statements provided to them by the instructor. The two managers discuss their understanding of these concepts as they prepare their assignment, which is due in two hours.
Two managers attending a week-long executive education course are working on an assignment which requires them to estimate the cost of capital for EnCana Corporation, a leading North American oil and gas producer. The two managers disagree about which costs need to be taken into account to complete the assignment. They are not sure about the costs of different sources of capital, the overall cost of capital and the appropriate use of the hurdle rate.
The chief financial officer (CFO) of TELUS Corporation (Telus) has just been informed that Moody's, a bond rating service, has downgraded the firm's credit rating to one notch below investment grade. The CFO's challenge is to determine what specific actions, if any, to recommend to the firm's audit committee. First, this case facilitates a discussion on how changes in capital structure impact a firm's earnings, stock price and flexibility to carry out plan. Second, students learn about how bond ratings are set and how a firm's bond rating affects its bond yield. Last, by focusing on the situation faced by Telus during challenging market conditions in 2002, students learn how to manage relationships with investors while in the midst of change.
Cash Technology Limited is a Xiamen-based manufacturer of self-service banking machines, touchscreens and related software. The company was set to issue its initial public offering on the Singapore Exchange. The proceeds from the IPO would help the mid-sized, entrepreneurial and private company secure its position in the burgeoning Chinese market for automated teller machines and related equipment. With six weeks left before the IPO, the chief executive officer and chief financial officer attempted to value their company by various methods and assess the reasonableness of the offering price proposed by the IPO manager. The case challenges students to examine the attractiveness and value of a business from the perspective of the issuer and potential investors, and can also provide the opportunity for students to develop a strategy for communicating with institutional investors.
Royal Manufacturing Inc. requires an extension of its temporary $3 million line of credit. Holdbacks on contracts and several years of losses were causing a cash flow problem. The company and the bank must now assess the company's financial needs.