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Advanced Material Technology Corp. (AMT), a Japan-based company and one of the world's largest manufacturers of advanced ceramic products, was considering the prospects of raising 24 billion Yen ($200 million) to finance AMT's planned capital expenditure program. The case introduces a variety of financing sources including straight debt, convertible bonds, and bonds with warrants. Currency denomination and location of a global offering are also considered. Also examines the economic and banking environment in Japan.

Behind every major resource-allocation decision a company makes lies some calculation of what that move is worth. So it is not surprising that valuation is the financial analytical skill general managers want to learn more than any other. What do generalists need in an updated valuation tool kit? In the 1970s, discounted-cash-flow analysis (DCF) emerged as best practice for valuing corporate assets. And one version of DCF--using the weighted-average cost of capital (WACC)--became the standard. Over the years, WACC has been used by most companies as a one-size-fits-all valuation tool. Today the WACC standard is insufficient. Improvements in computers and new theoretical insights have given rise to tools that outperform WACC in the three basic types of valuation problems managers face. Timothy Luehrman presents an overview of the three tools, explaining how they work and when to use them.

For the past 25 years, managers have been taught that the best practice for valuing assets--that is, an existing business, factory, product line, or market position--is to use a discounted-cash-flow (DCF) methodology. That is still true. But the particular version of DCF that has been accepted as the standard--using the weighted-average cost of capital (WACC)--is now obsolete. Today's better alternative, adjusted present value (APV), is especially versatile and reliable. It will likely replace WACC as the DCF methodology of choice among generalists. Like WACC, APV is used to value operations, or assets-in-place. Timothy Luehrman explains APV and walks readers through a case example designed to teach them how to use it.

This case concerns the devising of a financial strategy for a small, rapidly growing European document reproduction service firm. As of March 1996, the entrepreneurs have proved the viability of their store concept in Lisbon, Portugal, and seek to raise capital in order to expand across Europe. Ultimately, the founders seek to take the firm public by the year 2000. The task for the student is to assess the capital requirements necessary to support the ambitious growth plan, to value the firm, and to map a program of financings. Specifically, the founders anticipate selling common equity in a private offering in the near future. The student must propose a price and the number of shares for the private offering. The question of voting control becomes a key consideration in the structuring of next-round financing and subsequent rounds.

Spreadsheet for case UV0259

In February 1994, the senior management team at Continental Cablevision received the final joint-venture agreement from Fintelco, a potential partner in Argentina. The tasks for the student are to review the terms of the agreement, the outlook for the Argentine economy, and the corporate cultures at both companies to decide whether Continental should sign the agreement.

Spreadsheet for case UV2404

A U.S.-based manufacturer of imitation Navajo rugs is about to initiate manufacturing operations offshore for the first time-in this case-in the United Kingdom. In the financial planning stages, the firm's principals discuss tradeoffs in parent earnings and subsidiary earnings/expenses, focusing on the various intra-firm cash flows common between sub and parent (material transfers, royalties and license fees, intra-firm debt, etc.). The focus of the case is to determine the preferred combination and form of rates and charges between parent and subsidiary to achieve the firm's financial goals.

Spreadsheet supplement for case 297082.

Presents a framework for analyzing strategic decisions. Takes as given the practice of value-based management whereby managers use value as a primary criterion when making financial, strategic, or investment decisions. Through a simple valuation model, it shows how equity value is related to three value drivers profitability, advantage horizon, and reinvestment. Also presents a numerical example to illustrate the model as well as empirical evidence to support the relation between value creation and the value drivers.

Puts the student in the shoes of the recently appointed treasurer of Polaroid Corporation, who must consider several matters concerning the firm's debt policy. An immediate concern is the company's outstanding $150 million 7.25% notes, due to mature in several months. Although investment bankers interested in doing business with Polaroid have been trying to present proposals for refunding the issue, the new treasurer believes that any refunding decision should be part of a larger review of the firm's financial policies. Accordingly, he has undertaken a review of the firm's overall debt policy, focusing primarily on the mix of debt and equity and on the maturity structure of the debt. Asks students to consider how much flexibility Polaroid's business will require in future years and to pick a target debt ratio that provides the necessary flexibility. Students must evaluate, in addition to internal demands for funds, the role of bond ratings and investment-grade status in maintaining ongoing access to capital markets.

This technical note outlines the link between shareholder-return requirements and a firm's use of debt. It explores the theoretical arguments concerning how the cost of equity changes with the use of debt and discusses the limitations of each view. It also provides conceptual and practical guidance on the use of "levered" and "unlevered" betas.

This note explores how managers determine the proper amount of debt financing to use to fund a firm's operations. It examines the fundamental differences between debt financing and equity financing and the factors that drive the choice between them. The note is suitable for an introductory MBA course on corporate finance.

This case provides an introductory exercise for estimating the cost of capital (cost of equity, weighted average cost of capital) for a firm contemplating a large increase in debt. Students are asked to compare the debt policy of MCI Communications with that of five other leading telecommunications companies to find MCI's optimal capital structure.

Spreadsheet for case UV2421

Spreadsheet Supplement for case 297095

Examines the decision to go public. BioTransplant is an early stage biotechnology company that must decide how to finance its research and development. The pros and cons of public offerings are analyzed versus alternative financing sources.

The Asian economy, particularly China's, is experiencing explosive growth. China needs capital to fund the growth, and this presents a tremendous opportunity for an investment bank that can penetrate the market. Morgan Stanley establishes a joint venture with the China Construction Bank and three other partners to form China's first investment bank. The case discusses problems associated with establishing joint ventures and penetrating into developing markets.