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Supplements the (A) case..

Uses Ford's and Toyota's financial statements to familiarize students with the information provided in pension footnotes. Allows students to combine that information with other financial statement information to create a greater understanding of the costs of each company's business. Includes directive questions.

Compares two companies in the information capture software industry. Asks students to analyze and compare the performance of two companies (one in the United Kingdom and the other in the United States) from the perspective of a buy-side analyst reporting to the manager of the firm's Global Technology Fund. The analyst must decide whether to recommend one or both stocks to the fund manager. Provides an opportunity to compare the differences in terminology, presentation of financial reports, and accounting methods for the U.S. and U.K. firms.

The real options approach to capital budgeting uses an options-based analysis to evaluate the real (as opposed to the financial) potential of projects. By charting the options as a series of decision points and events, managers can understand the risks and rewards of the projects, and more fully assess their opportunities. This note introduces the real options approach and describes the four main categories: expansion and follow-on options, timing and delay options, abandonment options and options that introduce flexibility into production. The expansion option is discussed in detail, including sample calculations and decision trees.

Kemps is making a strategy shift: from being focused on fulfilling customer requests to becoming the best cost dairy producer in the industry. Its existing manufacturing cost system, however, fails to capture the costs associated with handling special flavors, small production orders, and complex delivery and order processing options. The company introduces a new system--time-driven, activity-based costing--that captures the full complexity of its operations and gives managers new insights into the profitability of orders, products, and customers. The time equations feature simply and accurately represents the cost impact of all possible options from a particular production order. Managers use the information to enhance process efficiencies, negotiate new terms with customers, and attempt to win new business. The company now faces some crucial decisions about how to forge new relationships with key customers.

This case poses the seemingly simple and straightforward question, "How much does it cost Wendy's to make a bowl of chili?" Because most of the meat used in making chili comes from overcooked hamburgers, however, a question of cost allocation arises. Wendy's is considering adding a salad bar to its "limited menu" and is wondering whether it should then drop an existing product. Such a decision leads to an evaluation of present-product profitability.

Two castings plants produce ductile iron return as a byproduct of the manufacturing process. The two plants, Lynchburg and Archer Creek, can use all of their byproduct in the production of subsequent castings. A third plant, Radford, makes cast-iron pipe. It produces only about 12% iron return (versus 40% to 50% for the other two plants) and also could use more. Since iron return used in the pipe plant substitutes for high-cost pig iron, it appears that a transfer could be worthwhile, because in the castings plants, the iron return substitutes for a lower-cost mix of pig iron and steel scrap. The central issue in the case then is this: Should ductile iron return be transferred from the Lynchburg and Archer Creek castings plants to the Radford pipe plant? The economic analysis shows there is a substantial savings to the company if the iron return is transferred. The question then becomes, at what price? This is really a question of how to divide the company's savings between the three plants, each of which is a cost center. Related to this question are a number of other issues: (1) the effect on plant performance, (2) the effect on decisions to discontinue, modernize, or expand the plants, (3) the effect on castings and pipe price, and (4) the effect on plant management morale and performance. At present, 3,500 tons of ductile iron return are being transferred from Lynchburg to Radford because the pieces are too large to be economically remelted at Lynchburg. The only cost Radford pays is freight. This is over half the potential 6,000 tons of iron return that it is feasible to transfer. An issue to consider is whether this iron return, which cannot be used at Lynchburg, should have the same transfer price as the iron return Lynchburg can use.

Andrew Amphlett's first assignment as a recently hired MBA at Sequim Investments was to evaluate NIKE Inc. for possible addition to the company's high-growth equity portfolio. NIKE's revenues had grown substantially during 2003 and 2004, in large part because of growth in global sales. Although the company's share price had climbed to over $70 per share, JPMorgan reported $88 per share as their newly established target price. A Value Line report on NIKE, however, noted that there was little upside stock price potential to NIKE's shares because much of the anticipated growth was already impounded in the current price. Amphlett must prepare a financial and valuation analysis of NIKE and make a portfolio recommendation to his boss.

Recently, accountants were instructed by President Bush to get their acts together. Indeed, the Enron, WorldCom, Tyco, and other recent corporate financial reporting failures have prompted a loss of faith in accountants and accounting. To a large extent, this loss of faith involves corporate balance sheets and it is warranted. Corporate managers and shareholders have a vested interest in addressing balance sheet shortcomings. Highlights the pervasive shortcomings of contemporary corporate balance sheets, identifies the underlying foundational tensions creating those shortcomings, offers proposals to address those tensions, and discusses the potential implications of the proposals.

Spreadsheet Supplement for case 106003.

Examines the valuation of an Irish airline that reported its first decline in net income in 2004 and saw a 30% stock price drop on the news. Ryanair is a low-cost, low-fare airline headquartered in Dublin, Ireland, operating over 200 routes in 20 countries. The company has directly challenged the largest airlines in Europe and has built a 20+ year track record of incredibly strong passenger growth while progressively reducing fares. It is not unusual for one-way tickets (exclusive of taxes) to sell on Ryanair's Web site for less than one euro. Having created profitable operations in the difficult airline industry, industry analysts and Ryanair itself have likened the airline to its U.S. counterpart, Southwest Airlines, and the common stock has attracted the attention of investors in Europe and abroad. Valuing Ryanair is problematic because of the general levels of uncertainty in the industry (i.e., fuel costs, labor, macroeconomic factors, etc.) and is exacerbated by the company's stated goal of actually decreasing fares each year.

The Canadian Imperial Bank of Commerce (CIBC) and Barclays Bank PLC have signed an agreement to combine their retail, corporate and offshore banking operations in the Caribbean to create FirstCaribbean International Bank. In principle, it appeared that both parties were agreeing to a combination of their assets to form a new entity, in which case a new holding company could be constituted to absorb the assets being merged. Alternately, as Barclays interest in the merger was substantially greater than that of CIBC, the transaction could be construed as an outright purchase of the CIBC interests by Barclays. The problem with this second approach, however, was that Barclays Caribbean presently had no separate legal form in the region. This case illustrates the procedures for accounting for mergers and acquisition, and lends itself to discussion on a myriad of issues and concepts. This case may be taught on a stand alone basis or in combination with any of the four additional cases which deal with various functional issues regarding the actual merger/integration which occurred. The four additional cases are Harmonization of Compensation and Benefits for FirstCaribbean Bank, product 9B04C053; Information Systems at FirstCaribbean: Choosing a Standard Operating Environment, product 9B04E032; CIBC-Barclays: Should Their Caribbean Operations be Merged?, product 9B04M067; and Note on Banking in the Caribbean, product 9B05M015.

The proprietor of a day spa must decide whether to purchase a microdermabrasion machine. This differential analysis case will test students' abilities to identify those costs that are recurring cash flows and those costs that are investments; give practice calculating working capital investments; differentiate between relevant and non-relevant costs for a differential analysis and test students on their ability to conduct a sensitivity analysis.

The president and chief executive officer of Info-Tech Research Group must determine the pricing and promotional strategies for the company's newest product offering. This case allows students to use differential analysis as a tool to aid in their decision. Students are expected to perform a qualitative analysis based on the fit of Info-Tech's new product offering within the competitive marketplace and its potential customers; identify those items relevant to the decision and categorize them as either recurring cash flows or one-time cash flows; understand that the recurring cash flows consist of both variable costs and fixed costs and to recognize the difference; identify those items which are investments, including working capital accounts; apply exchange rates so that all figures in the analysis are in the same currency; calculate return on investment and payback ratios; recognize the need for and perform a sensitivity analysis on the projected sales levels; and make a decision based on both qualitative and quantitative analysis.

The president of Jackson Limited's sawmill division was reviewing proposals to upgrade and modernize the sawmill at the New Denmark site in New Bruswick. He was faced with different alternatives ranging from a capital requirement of $6 million to as high as $14 million. The president must make a capital budget decision that will take into account several uncertainties.

Following an accounting problem at Molex, the firm's auditors request changes in management. The board of directors has to decide whether the auditors' concerns have merit or whether, as management argues, the accounting issue is immaterial.

Uses a fictional new winery to introduce accounting concepts and practices such as assets, liabilities, expenses, the matching principle, and contingent activities. Designed to approach the subject at a conceptual level, allowing class discussion to focus on the underlying thought process regarding accounting, rather than on "proper" numerical calculations.

Describes a meeting of an executive team to discuss strategy for a company turnaround. The exercise is to construct a strategy map and Balanced Scorecard to capture the new strategy.

Introduces the basic concept of asset securitization and the accounting for these transactions.

Spreadsheet supplement for 105077