Kaiser Steel entered Chapter 11 bankruptcy proceedings in early 1987. Nine months later it still faces several difficult obstacles to reorganization, including litigation, environmental liabilities, and pension and medical benefits for retired employees. Students are asked to propose a plan for reorganizing Kaiser, including a business plan, a confirmable allocation of assets and/or new securities, and specific steps to implement their proposals and bring the company out of Chapter 11. Addresses conflicts among claimants to a bankrupt firm and the obstacles and opportunities presented to each claimant by U.S. Chapter 11 bankruptcy rules. May be used with Note on Bankruptcy in the United States.
The CFO of Fleetwood Enterprises is considering whether to recommend a large share repurchase to the board of directors. Fleetwood's core businesses, manufactured housing and recreational vehicles, are very sensitive to business cycles and oil prices. Following Iraq's invasion of Kuwait, Fleetwood's stock price dropped more than 20%, but Fleetwood appears strong enough to both survive a severe downturn and repurchase a large block of shares. Designed to permit a thorough review of basic capital structure, dividend payout, and share repurchase theories, in the context of a large firm facing both a potential crisis and a valuable opportunity.
A group of investors is considering buying the sequel rights for a portfolio of feature films. They need to determine how much to offer to pay and how to structure a contract with one or more major U.S. film studios. The case contains cash flow estimates for all major films released in the United States during 1989. These data are used to generate estimates of the value of sequel rights prior to the first film's release. Designed to introduce students to real options and techniques for valuing them. It clearly illustrates the power of option pricing techniques for certain types of capital budgeting problems. Also illustrates the practical limitations of such techniques.
A wholly-owned subsidiary of Lockheed Corp. has an $11 million expansion underway in South Carolina. The company must decide how best to take advantage of the opportunity to issue tax exempt debt. Specifically, the decision involves choices about the maturity and redemption structure of the proposed issue. Designed to let students isolate interest tax shields and subsidies, and to value these elements of a financing package separately, as part of an "adjusted present value" analysis.
An introduction to, and summary of the laws, rules, and procedures established in the United States for settling the claims of creditors on a bankrupt company. Covers both Chapter 7 liquidations and Chapter 11 reorganizations.
Goodyear is nearing its first major capital commitments for the largest investment project in its history, the All American Pipeline. The pipeline will transport heavy crude oil from California to Texas. It is the centerpiece of a major program by Goodyear to diversify away from its core tire business. Goodyear estimates construction cost at just under $1 billion, while outside observers believe the cost could be twice as high. Students are asked to evaluate the project by analyzing data on the supply and demand for heavy crude oil and the economics of transporting it, and by computing and discounting the cash flows the pipeline can be expected to generate.