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In the context of determining an optimal portfolio to recommend to two hypothetical investors, this strucutuerd analysis leads students through a series of steps examining return data for three stocks. The analysis first explores the effects of portfolio formation on returns and volatility. With the addition of a market index and a bond portfolio, students easily recognize how portfolios from from these to investment vehicles may be optimal. The analysis then explores stock betas as a measure of risk and the statistical properties of those betas. At the conclusion, students will have a practical understanding of the capital asset pricing model.

This note describes the economic exposure that arises from changes in currency exchange rates. After illustrating the economic impact of exchange rate changes, including a discussion of real exchange rate changes, the note provides a summary of methods used to manage exposure. The use of forward rates and money markets is explored in detail.

In early 2006, the anticipated expansion of package delivery services in China provided a great opportunity for the two package delivery giants FedEx and UPS. It was unclear which of these firms would make the most of this opportunity. FedEx had an early foothold, but UPS had a longer tradition of success. Adding to this debate is the observation that the FedEx stock price had been rising steadily and on that basis, FedEx had outperformed UPS.

The owner of a small financial services firm is evaluating the performance of four funds to determine whether to offer them to his clients. The funds span a variety of objectives and include a recently initiated fund. The case explores issues related to the evaluation of mutual fund performance, including the selection of benchmarks and the effect of fees. The case provides a natural and compelling context in which to discuss market efficiency.

Spreadsheet Supplement for UV2561 AND UV4737.

Spreadsheet supplement for product UV2549.

Monsanto is facing an uncertain near term financial outlook and the case challenges students to generate an operating forecast (income statement and balance sheet operating accounts). The case naturally lends itself to sensitivity analysis related to sales growth assumptions. The case is intended to cover the basics of forecasting without introducing the complexities associated with financing.

This case forces students to examine the drivers of value, particularly growth and margins. It is also effective at drawing attention to the relationship between terminal value assumptions and value creation-assumptions that generate a large sensitivity of terminal value to growth rate are assumptions that imply that a great deal of value can still be created from investments after the planning horizon. The narrative features an analyst who is trying to make sense of a sharp one-day decline in the price of Crocs stock.

Student spreadsheet to case UV1066

This note reviews the four central parity conditions that underlie most theories regarding the relationship between exchange rates, inflation and interest rates. The concepts are illustrated through a unified example exploring the relation between the U.S. dollar and Norwegian krone. The note presents both an intuitive understanding of the relations as well as precise mathematical formulas frequently employed in analysis.

Effective, persuasive analytical writing is a critical management skill. This note trains students to write to the needs and expectations of their readers with objectivity and efficiency, whether they are writing memos, e-mails, research reports, technical briefings, position papers, or recommendations for action.

Student spreadsheet supplement to case UV2541

A privately held U.S. plumbing parts manufacturer is negotiating the purchase of a Brazilian plumbing manufacturer specializing in water conservation. The case provides sufficient information to value this cross-border acquisition and includes a brief summary of valuation techniques in this context. A particularly rich discussion arises from two points: A forecast of exchange rates from a forecasting company differs from forecasts based on inflation, and two methods are suggested for dealing with country risk (sovereign spread and scenario analysis).

This case can be used to discuss multiperiod financial forecasts and the relative desirability of various financing sources. As 2007 drew to a close, Panera Bread Company faced a new challenge. To date, it had relied on retained earnings and minor equity infusions to finance operations. But a decline in margins would limit future financing from internally generated funds. Complicating matters was the fact that its stock price was at historic lows and management was contemplating a large equity repurchase.

This note provides an overview of interest rate parity and the hedged cost of international borrowings. The note describes the essential steps to hedge international borrowings with forward contracts and describes in detail the link between forward rates and interest rates and what drives that relationship.

After five months of a fairly relaxed work schedule, Katzu Mizuno found himself wrapped up in an intense analysis. A first-year associate at Lynch Investments, Mizuno had received a morning phone call in February 1996. The caller was his boss, Anna Curti. The subject was a long-time customer, MCI. In contrast to the booming stock market, the performance of MCI's share price had been underwhelming. The board of directors had recently discussed repurchasing shares in order to bolster shareholder value. But cash was tight. If MCI intended to implement a stock repurchase program within the next six months, the company would have to use debt financing to supply the cash. Although the current debt-to-equity ratio of 40% was arguably below the industry average and MCI had excess debt capacity, the decision was far from simple. MCI had contacted Lynch to provide an analysis and recommendation regarding the proposed debt issue and stock repurchase. Curti needed to respond quickly, which gave Mizuno little time. The board planned to disclose the details of its plan to improve shareholder value by the end of the following week. Any recommendation and accompanying analysis would be intensely scrutinized. The heat was clearly on. As Mizuno labored to complete and refine the analysis in front of him, heavy on his mind was how he would relay his findings to Curti. What information and resources would she need in order to advise the client on whether to move forward with the plan?

After having negotiated major financial and operating decisions with its parent company, the Chief Financial Officer of this small ready mix concrete subsidiary is then asked to provide a valuation of the subsidiary. A one year forecast of financial statements is provided along with information on long term operating expectations and capital costs. This otherwise straightforward valuation exercise is enhanced by (1) the need to select between the parent or comparable firm costs of capital, (2) sufficient guidance to perform an illuminating sensitivity analysis, and (3) a sufficiently clear and rich context in which to illustrate the linkages between operating and financing choices.

While preparing a financial forecast, the newly promoted CFO of a small and profitable, but financially constrained, ready-mix concrete company must choose between renegotiating debt obligations, postponing long overdue capital improvements that will prevent more costly future repairs, or reducing the dividend payment to a parent company that just recently purchased the firm. A potential slowdown in the business due to a slowing economy and pressure from the new parent company add additional layers of complexity.

A small adhesives company faces exchange-rate risks as it makes its first foray into international sales. The receipt of payment from an unhedged foreign currency denominated past sale illustrates potential currency risks while a potential follow-on order provides a context to discuss potential hedges. Additional richness is provided by the fact that the follow-on sale appears unprofitable unless the analysis acknowledges the irrelevance of overhead and that the market value of raw materials is below book value.