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Capital markets now demand that CEOs monitor the "value gap" between what their company's shareholders realize now and what they might be able to get. As the pool of available funds grows and the number of easy targets declines, acquirers will turn their attention to companies with smaller and smaller value gaps. CEOs must measure the value gap and track it periodically. To manage the gap, CEOs can choose one or more of three basic options: improve operations, leverage the company's capital structure, or sell business units to the "best buyers."

Spreadsheet Supplement for case 287063

Involves the initial public offering of a firm's stock. The offering includes a money-back guarantee to investors from the issuing firm which comes in the form of a "put" option. Option valuation is thus an important issue in this case.

Describes the development and terms of the largest leveraged buyout up to the date of the case. The main problem is to value the positions of the various participants: lenders, equity holders, investment bankers, and management. This is an abridged version of an earlier case by D.W. Mullins, Jr.

Examination of the interaction among inflation, capital costs, profitability, growth, and the market value of a company's common stock can determine whether growth adds value for a company's shareholders. Analysis of the expected excess returns, figured on a net present value basis, of Tandy Corp., Xerox, and National Steel illustrates how the gap between market and book value of common stock can widen and illustrates that growth will add value if ROE is expected to exceed the cost of equity capital. But inadequate profitability coupled with the need to finance inflation-induced sales growth can be disastrous for the company's valuation.

Involves the management of a firm with a market value of a going concern that is less than its breakup value. How does management maximize value for shareholders in this environment?

Spreadsheet Supplement for case 283014.

Spreadsheet Supplement for case 283013.

Esmark's management sells its most valuable business and its most unattractive business in an effort to reposition itself and maximize shareholder value.

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.

Presents data relevant to a major capital expenditure--the construction of a shrimp plant. Designed to test student's ability to identify relevant cash flows, to estimate the cost of capital, and to decide whether or not to invest.

A large chemical manufacturer divests a plant that is acquired by a small specialty chemicals manufacturer. The acquisition decision is viewed from the vantage point of the small specialty chemicals manufacturer.

Choosing an equity offering or an offering of straight subordinated debt with a CCC credit rating and a 12.5% coupon.

Examines the interrelationship between the maximization of the share value of a firm's common stock and the minimization of the firm's weighted average cost of capital. Presents a revised version of a case by J.W. Mullins, Jr.

Involves a $550 million cash tender offer by Kennecott Copper Corp. for all of the outstanding common shares of the Carborundum Corp.

Examines how the attractiveness of an investment project can be enhanced by making financing and operating decisions which either manage investment returns or reduce project risks.

Spreadsheet Supplement for case 273099

Involves a very rapidly growing retail chain that is financing itself in an unusual (and at first glance) risky fashion.

Demonstrates hypothetically and numerically the share price valuation impact of changes in a firm's capital structure.