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Managers must stop arguing about whether the market has valued their company's stock price fairly and learn to interpret what share prices tell them about market expectations of their future performance. Here is a "market signals approach" that allows management to compare its own plans against those of the market. This technique enables executives to: determine whether a suggested acquisition price is too high; use share price to ascertain whether market expectations about a company's hurdle rates are reasonable; discover at what level it should set hurdle rates for capital investment projects; and better align management and shareholder interests.

This premier retail jewelry company was bought from its parent, Avon, by a group of investors led by its own management in 1984. The company was highly leveraged, financially, and had to scramble to meet the cash flow and earnings requirements laid down by its lenders. Management effected a turnaround and decided to "go public" to pay down its debt and provide further growth funds. Students must assess the company's relative appeal to investors and refine a pricing recommendation for the securities underwriting syndicate.

Spreadsheet Supplement for case 288022

Spreadsheet Supplement for case 288018.

Describes the effects on operating cash flows of a real change in exchange rates. Describes different elements of operating exposure and includes illustrative examples.

Describes the transaction and translation exposures that companies doing business internationally face when foreign exchange rates change. Also discusses how to measure and cover both types of exposure. Covering techniques are demonstrated using examples of forward cover, money market hedges, and options market hedges. Other covering devices, such as swaps and leads and lags, are also presented. Explains how these exposures relate to each other and what can be done to minimize overall foreign exchange risk.

Spreadsheet Supplement for case 288017

The performance measurement system in many decentralized companies actually works against good management. It encourages profit center managers to cover up bad news, take short-term actions that may hurt the real interests of their organizations, and accept responsibility for things over which they have little or no control. The solution is to measure the performance of profit centers and their managers with different yardsticks. Measure profit centers with profit center financial statements that follow traditional accounting systems. To measure the managers, use separate profit budget reports.

Describes the potential acquisition of a downtown office building in Boston through a sealed bid auction. The prospective buyer analyzes in detail all elements of the income and expense statements, calculates the effect of all improvements, and imputes a purchase price on the property.

Spreadsheet Supplement for case 187178

A mezzanine financing package may be the right thing for a small business that is having trouble finding long-term capital to finance its growth. Mezzanine loans are flexible. In most cases the lender provides from $500,000 to $5 million in subordinated debt over a five- to seven-year term at an interest rate costing no more, sometimes less, than senior debt. In exchange the borrower gives the investor warrants to purchase a small amount of the company's common stock--usually 5% to 15%--at a later stage. For lenders, mezzanine loans provide a higher total rate of return than most conventional loans because of the equity feature. For businesses, they provide affordable long-term debt without diluting the owners' equity.

Discusses the background of the foreign exchange market. This includes information about the participants and how the market operates. The problem set verses students in the arithmetic in the many common foreign exchange problems such as calculating forward premium and discounts, determining hedge ratios, covered interest arbitrage, etc.

Spreadsheet Supplement for case 287033.

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.

Walt Disney is considering hedging future yen inflows from Disney Tokyo. It is evaluating techniques using FX Forwards, swaps, and Yen term borrowings. Goldman Sachs presents a rather unusual but potentially attractive solution: Disney could issue ECU Eurobonds and swap into a Yen liability. The case explains how this alternative would work and suggests to the students ways to evaluate the hedging choices.

Reynolds must source a substantial portion of the financing of its Nabisco acquisition in offshore bond markets. Morgan Guaranty has proposed a yen/dollar dual currency Eurobond that could be hedged into dollars. This structure is compared to Eurodollar Bonds, Euroyen Bonds, and Euroyen Bonds swapped or hedged into dollars.

Spreadsheet Supplement for case 287057

A sole proprietor, with depleted savings, has requested both an operating loan as well as a line of credit. The operating loan will be used to retire his 'run-away' trade debts and the line of credit to service his cash-tight months.

The executive vice-president of Markborough Properties Inc. was preparing for an upcoming Board of Directors meeting. On the agenda was the proposed use of interest rate hedging to minimize the company's interest rate exposure. Among the alternatives were interest rate swaps and caps. Was it an appropriate time for Markborough to hedge its floating rate debt? If so, how and using what vehicle?