個案總覽

As a way to value growth opportunities, real options have had a difficult time catching on with managers. Many CFOs believe the method ensures the overvaluation of risky projects. This concern is legitimate, but abandoning real options as a valuation model isn't the solution. Companies that rely solely on discounted cash flow (DCF) analysis underestimate the value of their projects and may fail to invest enough in uncertain but highly promising opportunities. CFOs need not--and should not--choose one approach over the other. Far from being a replacement for DCF analysis, real options are an essential complement, and a project's total value should encompass both. DCF captures a base estimate of value; real options take into account the potential for big gains. This is not to say that there aren't problems with real options. As currently applied, they focus almost exclusively on the risks associated with revenues, ignoring the risks associated with a project's costs. It's also true that option valuations almost always ignore assets that an initial investment in a subsequently abandoned project will often leave the company. In this article, the authors present a simple formula for combining DCF and option valuations that addresses these two problems. Using an integrated approach, managers will, in the long run, select better projects than their more timid competitors while keeping risk under control. Thus, they will outperform their rivals in both the product and the capital markets.

Herd behavior among investors has produced many of capitalism's great achievements, says Robert D. Hormats of Goldman Sachs International.

Nobel laureate Robert C. Merton explains that companies sometimes misvalue capital investment opportunities because they fail to adjust their cost-of-capital calculations to reflect pension risks.

Spreadsheet Supplement for case 10536

Mario Quintana, managing partner of Pegasus Capital, was preparing for the upcoming Musimundo board of directors meeting. He was satisfied with the investment decisions of the entertainment retailer, as actual performance surpassed the initial budget. However, given a recent market rebound, Quintana worried that the firm might be falling short of its potential. Additionally, the board of directors would have to analyze a proposal to reset sales targets for the different stores.

Spreadsheet Supplement for case 205040

Florentino Perez, the president of Real Madrid, a leading European soccer team, is preparing for a press conference in which he will be asked about his plans for the coming season. Economic success and some sports mishaps during the prior season represent the scenario in which planning decisions are made.

An introduction to the internal control process from a managerial perspective.

In the classroom, activity-based costing (ABC) looks like a great way to manage a company's limited resources. But executives who have tried to implement ABC in their organizations on any significant scale have often abandoned the attempt in the face of rising costs and employee irritation. They should try again, because a new approach sidesteps the difficulties associated with large-scale ABC implementation. In the revised model, managers estimate the resource demands imposed by each transaction, product, or customer, rather than rely on time-consuming and costly employee surveys. This method is simpler because it requires for each group of resources, estimates of only two parameters: how much it costs per time unit to supply resources to the business activities (the total overhead expenditure of a department divided by the total number of minutes of employee time available) and how much time it takes to carry out one unit of each kind of activity (as estimated or observed by the manager). This approach also overcomes a serious technical problem associated with employee surveys: when asked to estimate time spent on activities, employees invariably report percentages that add up to 100. Under the new system, managers take into account time that is idle or unused. Armed with the data, managers then construct time equations, a new feature that enables the model to reflect the complexity of real-world operations by showing how specific order, customer, and activity characteristics cause processing times to vary. This tool kit uses concrete examples to demonstrate how managers can obtain meaningful cost and profitability information quickly and inexpensively. Rather than endlessly updating and maintaining ABC data, they can now spend their time addressing the deficiencies the model reveals: inefficient processes, unprofitable products and customers, and excess capacity.

Charley Turner, the owner of four Charley's Family Steak Houses located in a rapidly growing cosmopolitan city in eastern Texas, is about to meet with Alex Pearson, the new manager of Charley's Family Steak House No. 2, in mid-December 2007. The primary purpose of this meeting is to finalize the 2008 operating plan for the restaurant, and similar meetings are scheduled with the other restaurant managers. Turner has decided that, due to the growth of his business, he can no longer continue to manage the operation as he did when there were only one or two restaurants. Therefore, he is in the process of implementing a more formal and rigorous planning and budgeting process. The case describes the process through which Charley Turner and Alex Pearson reach agreement regarding the final operating plan for the restaurant for 2008. The description contained in the case is both detailed and thorough, and includes the basis on which annual revenues are projected as well as the basis on which each expense is forecast for the year. Students are asked to verify all the amounts shown in the 2008 operating plan and then to prepare a revised operating plan based on a more pessimistic sales forecast.

In this, the second of a three-case series, Charley's Family Steak House No. 2 manager Alex Pearson prepares to meet with the restaurant's owner to assess Pearson's 2008 performance against the 2008 operating plan the two developed in December 2007. As he reviews the numbers, he asks himself: "How did actual sales compare with planned sales?" and "How well were costs and expenses controlled?"

Introduces traditional cost accounting systems.

Spreadsheet Supplement for case 105039.

Biovail was a large international pharmaceutical company with reported revenues of $788 million. Banc of America has issued a research report which indicates that Biovail Corporation's financial statements raised a number of issues that warrant caution for investors, and as a result, Biovail's stock was given a sell rating by Banc of America. A member of Biovail's audit committee is preparing for an upcoming audit meeting and considers the implications of this report for the company and for the audit committee.

An undergraduate business student has finished his first term of study and is pursuing numerous summer job opportunities. He is interested in the field of investment banking and is aware this area requires a strong skill set for financial analysis. A friend, who had worked in investment banking, helps him to prepare for these interviews by providing an exercise where he must match the financial data with its respective industry.

Money laundering is not an activity far removed from the corporate world; in fact, many organizations are unwittingly drawn into the web of money laundering with often damaging results. This note traces the history of money laundering, explores the different stages in the money laundering process, and investigates the growing phenomenon of cyber-laundering. Its intent is to raise awareness of the phenomenon as it relates to the corporate world and to help inform corporate personnel and business students how it might affect their workplace and their work lives.

An undergraduate business student has finished his first term of study and is pursuing numerous summer job opportunities. He is interested in the field of investment banking and is aware this area requires a strong skill set for financial analysis. A friend, who had worked in investment banking, helps him to prepare for these interviews by providing an exercise where he must match the financial data with its respective industry.

Associate Jack Hereford must analyze the earnings quality of Nuware Imports. His specific task is to assess the accounting policies of Nuware as aggressive or conservative and then recast the current earnings of the company as if it had employed the accounting policies used by its closest peer. A number of adjustments are required, including those related to inventory, receivables, fixed assets, stock options, investments, and pensions. Through this exercise, one sees the interplay of various discretionary accounting policies followed by management, how to infer the monetary impact of that discretion, and how to assess adequately the profitability of one company relative to another.

A senior analyst has recently completed an on-site visit to the Las Vegas properties of MGM Mirage. She must value the enterprise after her preparation of projected financial statements. Assumptions for these statements come from a combination of standard account relations delineated in the case and from specific company projections that must be gleaned from MGM's MD&A. This case introduces students to pro forma financial statements and their relevance to cash flow and earnings-based valuation. Tools relevant to spreadsheet modeling can also be introduced. The case precedes MGM's announced acquisition of Mandalay Bay Corporation in 2004.

Arvind Mills, a large Indian textile and garment manufacturer, has to assess the costs of a large order, as a basis for a price quotation. The company is in a significant loss position. The textile industry in India is constrained by government regulations and the industry is critical as both an export earner and a major employer in the economy. However, the industry is losing share to China and must change to meet that threat. The vice-president of operations must assess the costs associated with the order, including an assessment whether to use the traditional cost system or the customer and manufacturing based activity cost system. The decision is also strategic as this order is at the core of the company's new strategy to be both a designer and manufacturer.