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Microsoft Corp. proposes to acquire Intuit Corp. Examines the strategic fit and the price proposed to complete the transaction.

Provides an introduction to three cash flow valuation methods. The three methods differ in their measure of cash flows and the discount rate applied to those cash flows. The names for the three methods correspond to the type of cash flow that is used in the valuation: Equity Cash Flow (ECF), Capital Cash Flow (CCF), and Free Cash Flow (FCF). The three methods provide consistent valuations when applied correctly.

Companies make capital investments to create and exploit profit opportunities. Opportunities are options--rights but not obligations to take some future action. The old net present value presumption that investment decisions are either reversible or now-or-never propositions turns out to be flawed. Irreversibility, uncertainty, and the choice of timing alter the investment decision in critical ways. Investment expenditures are irreversible when they are specific to a company or to an industry. The simple NPV rule should be modified: Instead of being merely positive, the present value of the expected stream of cash from a project must exceed the cost of the project by an amount equal to the value of keeping the investment option alive. Because they create and preserve options, decisions such as those to test a market or conduct R&D enhance a company's flexibility and should be made more readily than a naive NPV would suggest; but decisions that reduce flexibility should be made more hesitantly and be subjected to stiffer hurdle rates than the cost of capital.

Once the rage of Western capitalism, leveraged buyouts have lost their glamour and much of their respectability. Suggest an LBO as a healthy way to create value, and most people will assume you are just trying to stimulate lively conversation. Propose it as a means of improving operating performance by restoring strong, constructive relationships among owners, managers, and other corporate stakeholders, and you may be viewed as a refugee of the 1980s, deluded by the decade of greed. Although some LBOs may have deserved the criticism they have received, the overall perception about them is distorted, the authors contend. Their research at one LBO firm, Clayton, Dubilier & Rice (CD&R), reveals an approach to ownership and governance that challenges the dominant view. Instead of finding impersonal transactions in which buyers put a lid on investment, growth, and managerial autonomy, the authors found that chief executives had more freedom to exercise discretion under LBO ownership than they had had under corporate ownership. CD&R's experience over more than a decade offers insights into what constitutes best practice in the ownership and governance of corporate enterprises.

Home Shopping Network invented the video home shopping industry. It had immediate success in both the product and capital markets, which quickly drew imitators. This case describes the situation as of January 1986, when the company must decide how to sustain successes in both markets. Students must discuss the proper valuation of the firm, proper financing strategy, possible future product lines, and how to deal with competition.

Spreadsheet Supplement for case 295135

A prolonged decline in copper prices prompts Phelps Dodge, one of the world's largest independent copper companies, to consider corporate diversification as a means of protecting itself from copper price volatility.

In 1994, a senior lender at a West Coast financial institution must evaluate an opportunity to provide credit for a management buyout of a vineyard.The tasks for the student are to value the vineyard, assess its ability to service the proposed debt, critically evaluate the buyout terms, and recommend action for the lender.

The objective of this note is to define what is meant by mergers and acquisitions and to understand why they happen. The impact of these deals on shareholders of both the acquiring and acquired companies is investigated, and the reasons why some mergers succeed while others fail are examined. Finally, in order to determine the value of a firm, some valuation frameworks are provided.

Peter Munk, Chairman and Chief Executive Officer of American Barrick Resources Corporation, had to decide whether or not to make a bid for Lac Minerals. Lac Minerals was recently put into play when Royal Oak Mines made an unsolicited bid.

The vice president of finance at Rocky Mountain High Ski Resort Inc. (RMH) was examining the alternatives for financing a proposed $25 million expansion. The well-known Western Canadian all-season resort planned to add several new runs, additional snowmaking capacity, another high-speed quad chair lift, a 700-seat restaurant, a new retail ski equipment store, and upgrades to the existing infrastructure. The directors of RMH were scheduled to meet in two weeks to approve both the proposed expansion and financing plans.

Provides an elementary introduction to three major classes of derivative instruments: options, forwards and futures, and swaps.

Spreadsheet Supplement for case 295141.

Spreadsheet Supplement for case 295111

Anasazi, a hair-care products start-up based in the Midwest, is having growing pains as it tries to develop a new distribution model for the professional hair salon industry. The company has completed several rounds of venture financing but, to continue, needs to raise more capital earlier than expected. It goes through a process of refining and refocusing its strategy to raise the new funds.

Illustrates the payoff structure of various positions involving put and call options and the use of put-call parity in understanding the relationships among various positions. Examines the cases of insured equity, interest rate caps and floors, callable and extendable debt, and corporate balance sheets.

In the largest attempted employee-buyout in history, a large U.S. commercial airline seeks substantial wage concessions from its employees in return for 53% stake in the airline's common stock and guaranteed seats on the board of directors. Management must convince employees, shareholders, Wall Street analysts, and the media that the buyout makes sense from value, operating, and strategic perspectives.

Robert Adams, president and CEO of Xerox Technology Ventures (XTV), confronts several changes in his organization. Established by the Xerox Corp. to invest in fledgling organizations, XTV is now being offered the opportunity to undertake buyouts of many of Xerox's units.