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Spreadsheet Supplement for case 290064.

Summarizes the outcome.

A company is considering the elimination of a product line. As part of that consideration, it must develop possible strategies for closing the division, and identify the economic and non-economic implications of the strategy. The situation is complicated by the company's need for an infusion of equity capital.

The CEO of a U.S. electronics firm is assessing the financial forecasts and the financing plan prepared by the chief financial officer. Given the cyclicality of the industry and the volatility of the firm's performance, the CEO is unsure as to the usefulness of forecasts based on straight line extrapolation of rapid sales growth and stable relationships of profits and assets to sales. The teaching objectives include: 1) how many years into the future should the forecasts run given the level of uncertainty, 2) how can one deal with the high uncertainty when preparing the forecasts or designing a financing plan, and 3) how to estimate the financing needs under conditions of adversity.

Senior management of General Motors must select a site for a new assembly plant to replace two plants located in Detroit. The economics strongly favor a site in an adjacent state. However, a relocation would have substantial, negative impact on the existing work force, the City of Detroit, and suppliers in the Detroit area. Selection of a Detroit site would result in higher costs and would require the taking by eminent domain of 1,200 homes in the community of Poletown. The case raises issues of corporate responsibility, business-government relations, and stakeholder analysis.

Spreadsheet Supplement for case 287028.

A loan officer must decide whether to lend $8 million to a rapidly growing high technology company. The company has had a series of relationships with three other banks. Reports from loan officers at these banks are mixed and raise questions as to the ease with which a relationship would proceed. The full range of issues must be considered in evaluating the credit worthiness (character, collateral, capacity, conditions, pricing). The loan officer must also determine how much weight to place on a comfort letter from a major pharmaceutical firm.

A credit analyst for a furniture manufacturer is confronted with two customers who have exceeded their credit limits. The financial performance of each has been weak, and one of the customers has a highly leveraged balance sheet. Industry conditions are weak; the manufacturer apparently has excess capacity; and the credit analyst is caught between the conflicting demands of the sales managers and the credit manager. The case provides an opportunity for ratio analysis.

Spreadsheet Supplement for case 286021

A senior loan officer is reviewing the recent performance of a company that has failed to repay its loan as scheduled. The failure results from a cyclical downturn in sales, coupled with a lag in cutting back production. Inventory risk is minimal. This case is an updated version of Cutrite Shears.

The Wilson Lumber Co. is faced with a need for increased bank financing due to its rapid sales growth and low profitability. Students must determine the reasons for the rising bank borrowing, estimate the amount of borrowing needed, and assess the attractiveness of the loan to the bank. A rewritten version of an earlier case by J.K. Butters.

Spreadsheet Supplement for case 286122.

The manager of international finance of a major U.S. electronics company is concerned about the exposure of the firm to changes in exchange rates. Of particular concern is the exposure of operations to changes in real exchange rates. The teaching objectives include: 1) understanding operating exposure and contractual exposure; 2) understanding the issues in estimating operating exposure; 3) understanding possible actions to neutralize operating exposure; and 4) assigning responsibility for the management of operating exposure.

A truck manufacturer must decide whether to bid on the sale of 120 trucks to a private firm in Costa Rica. If a bid is submitted, a decision must be made on whether to protect against the credit, exchange rate, and sovereign risks.

A review of two decades of research shows that debt financing has a far lower payoff than many chief financial officers (CFOs) believe. CFOs determine a sensible debt policy that is in line with corporate strategy by following a recommended policy that considers: a company's particular financing needs; the lending criteria of target sources of capital; the implications of debt policy on strategy, competition, and shareholders; and the ease of implementation. Each CFO should determine the limit of debt's payoffs to the company and should recognize what conditions might push him or her to exceed that limit. Formulation of a solid plan ensures a steady flow of capital and secures top management's commitment to such a plan.

Marriott is considering the repurchase of ten million shares. This is apparently at odds with the financial policies that the Board of Directors passed two years earlier. Students must discuss why the policies were passed and why changes are now necessary. Includes a discussion of debt policy, financing policy and dividend policy. Students also discover stock is currently undervalued.

Management must choose between two mutually exclusive bids to build two drilling rigs. Both bids involve attractive export credit financing denominated in foreign currencies.

Corporate financial officers (CFOs) who successfully second-guess stock market analysts observe three requirements: they avoid the trap of equating a low price-earnings multiple with evidence of undervaluation; they monitor the leading analysts' perceptions for significant variations from company forecasts; and they translate these forecasts into estimates of economic value. The recommended dividend valuation model uses as its basis a company's fundamental detriments of value, including its prospects for profitability and its long-run investment opportunities. While companies can profit by outguessing the market, corporate management should assume the correctness of market prices unless disproven by the CFO's thorough, fundamental valuation.

A large diversified company must develop a strategy for a division whose performance has deteriorated due to its aging product. Alternatives range from liquidation to a major investment in a new product. The formal capital budgeting system is compared with the informal process by which projects are identified and presented. This case is a consolidation of MRC, Inc. (A) and (B) by R.W. Moore.

A large integrated oil company is debating whether to switch from a single hurdle rate to multiple hurdle rates for project analysis purposes. Raises questions on: 1) determination of the cost of equity; 2) the usefulness of multiple hurdle rates to adjust for project risk; 3) differences between a project's risk and its impact on overall corporate risk; and 4) the limitations of project analysis and capital budget systems.