Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)

This case map is unusual in that the case suggestions were provided by textbook author Scott Smart. Every case map provides only a partial list of relevant items from HBS Publishing. To explore alternatives, or to get more information on the cases listed below, visit our web site at www.hbsp.harvard.edu/educators and use the searching functions.
Case Title Institution, HBSP Product Number, Length, Teaching Note Geographical and Industry Setting, Company Size, Time Frame Abstract, Key Subjects

Chapter 1 The Scope of Corporate Finance Limited Liability HBS N/A Companies 298097 (HBS 2p Background Note) Henry B. Reiling Knoll Furniture: Going Public Paul A. Gompers; Jon Asher Daniels HBS 202114 26p United States furniture $600 million revenues 1997

As of early 1998, virtually all U.S. states had adopted legislation permitting the organization of limited liability companies (LLSs). This note describes this new type of entity and the reason why it has become so popular. Teaching Purpose: To identify and describe one of the types of entities through which business can be conducted. Subject: Taxation Examines the decisions of John Lynch, president and CEO of Knoll Furniture, to go public in early 1997. Knoll went private in an LBO in 1996 and Warburg Pincus, the LBO sponsor, wants Lynch to take Knoll public. Lynch needs to weigh the positive and negative issues of a public offering. Teaching Purpose: To understand the decision to go public. Subjects: Entrepreneurial finance; Furniture; IPO; Venture capital

Chapter 2 Financial Statements and Cash Flow Analysis Identifying Hong U. of Hong Kong Firms Kong During the Asian HKU087 Financial Crisis 10p TN available Su Han Chan; Ko Wang; Mary Ho

Hong Kong hotels, property, utilities 1997-1998

Covers managerial strategy and its link to financial performance of 12 unidentified companies within 6 dominant industries in Hong Kong. The companies are divided into pairs according to their industry characteristics. Set in the 1997-98 period, when the operating environment underwent a spectacular downturn following the outbreak of the Asian financial crisis in mid-1997. Allows students to match the descriptions of the companies with their financial

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
profiles and consider the impact of the financial crisis on their financial performance. Teaching Purpose: Introduces students to financial ratio analysis and the insights financial ratios offer. Students may draw substantial insights from the case, which may include: The effect of industry differences on financial rations; the link between managerial choices and financial performance; and the impact of the Asian financial turmoil on firms' financial performance. Subjects: Asia; Business conditions; Financial analysis; Financial ratios; Performance measurement Introduces the statement of cash flow. Contains three examples of multi-year statements of cash flows from three unidentified companies. The analysis tasks include examination of cash flows, analysis of profitability of operations, investment policies, and financing. Teaching Purpose: To introduce the statement of cash flows now required in the United States. Subjects: Accounting policies; Accounting procedures; Cash flow; Financial analysis; Financial reporting; Securities analysis Describes a step-by-step process by which one can assess whether a firm's strategy, with its resultant resource requirements, is in line with its financing capabilities. Asks students to answer a series of questions about financial ratios, discussing where each type ratio is helpful in assessing whether the corporate financial system will remain in balance. The final section asks students to identify each of five industries based on their financial characteristics. A rewritten version of an earlier case. Subjects: Financial analysis; Financial ratios; Forecasting Explores the challenges facing Tim Williams, the new CFO of a publicly-traded enterprise software company, as he attempts to rebuild his company's reputation following a highly visible financial reporting crisis. The crisis began with a warning of an earnings shortfall, which precipitated a dramatic share price drop, culminating in an SEC investigation and resulting in several shareholder lawsuits. Armed with an understanding of the company business model, sales cycle, and revenue recognition policy, Williams must piece together why the reporting crisis happened and determine which policies and business practices under his control can be changed to ensure against future financial reporting issues. Looking

Statements of Cash Flows: Three Examples William J. Bruns Jr.; Julie H. Hertenstein

HBS 193103 8p TN available

1989-1991

Assessing a Firm's Future Financial Health (HBS background note) Thomas R. Piper

HBS 201077 17p TN available

N/A

Policy Management Systems Corp.: The Financial Reporting Crisis Amy P. Hutton

HBS 102013 10p TN available

United States software $497 million revenues 1993

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
to rebuild the company's credibility with the financial community, Williams must also attempt to understand the role of regulators and capital market intermediaries--in particular, financial analysts. Teaching Purpose: Useful early in a course on financial reporting to develop a basic framework for the role of financial reporting and disclosure in the capital markets. Provides opportunities for discussing key aspects of the financial reporting system, including accrual accounting, management's responsibility for financial reporting, and the set of generally accepted accounting principles and audit practices that impose restrictions on management. Additionally, highlights the roles of capital market regulators (the SEC) and information intermediaries who provide independent certification of the quality of a firm's financial reporting and disclosure process. Subjects: Accounting; Capital markets; Disclosure; Financial reporting; Financial strategy; Forecasting; GAAP; SEC; Software; Value of information Contains common-size balance sheets and financial ratios for ten companies, each representative of a different industry. Students are asked to identify the industries from the structure of the financial statements. Teaching Purpose: Gives students practice in using financial ratios and helps develop an understanding of the factors that drive the financial structure of firms. Subjects: Capital structure; Financial analysis; Financial ratios; Financial reporting An individual is considering the development of a new restaurant. To make the decision, she uses NPV analysis to determine whether she should undertake the investment, and if so, the optimal size of the investment. Teaching Purpose: Introduces net present value analysis. Subjects: Capital budgeting; Present value; Restaurants

Drivers of Industry Financial Structure (HBS Exercise) Dwight B. Crane; Indra A. Reinbergs

HBS 201039 3p

N/A

Chapter 3 Present Value Ginny's HBS Restaurant 201099 (Exercise) 2p TN available Mark Mitchell

N/A

Chapter 4 Bond and Stock Valuation Bond Math HBS N/A 201101 Todd Pulvino 4p

A set of four exercises that teach compounding interest and valuing bonds. Teaching Purpose: To teach the mechanics of valuing bonds. Subjects: Bonds; Financial instruments; Interest

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
Cougars Scott P. Mason; Mihir Desai HBS 295006 6p TN available N/A rates; Present value; Valuation Provides an introduction to zero coupon bonds and stripping coupon bonds. Concerns the relationship between the spot curve, the strip curve, and the coupon curve. Subjects: Bonds; Innovation; Interest rates; Pricing Considers the managerial decision faced by the state's treasurer in 1998. Until last year the South Carolina state pension fund (with over $17 billion in assets) was barred by the state constitution from investing in equities. After the constitution was amended, the state government had to decide how much to invest in equities, and what assets to choose. Using domestic and international data, the concepts of standard deviation, correlation, covariance, diversification, and risk are introduced. Additionally the case looks at the equity premium from a global setting. Covers two days, and will be used early in the Risk and Return module, just before the introduction of the CAPM. Teaching Purpose: To introduce the concept of risk and return in capital markets. Illustrates benefits of portfolio diversification. Subjects: Investment management; Pension funds; Portfolio management; Risk; State government A manager of a small investment company has been successfully using index funds for limited market timing. Growth has allowed her to move into picking stocks. She is considering two small and highly variable listed stocks, but is concerned about the risk that these investments might add to her "portfolio." Provides a lead-in to the CAPM. Students learn about total risk, non-diversifiable or portfolio risk, and (CAPM) beta, and calculate variability of the stocks separately, and portfolio variance with and without the stocks, to see how an extremely risky (but low-beta) stock actually reduces risk; and calculate stock betas. Subjects: Cost benefit analysis; Diversification; Efficient markets; Investment management; Portfolio management; Regression analysis; Risk assessment In March 2000, the board of The Harvard Management Co. (HMC) approved significant changes in the policy portfolio determining the

Chapter 5 Risk and Return The State of HBS South Carolina 201061 31p Randolph B. TN available Cohen; Mark Mitchell

South Carolina state government 1998

Beta Management Co. Michael E. Edleson

HBS 292122 5p TN available

investment management small 1991

Chapter 6 Risk and Return: The CAPM and Beyond The Harvard HBS Boston, MA Management Co. 201053 University and Inflation13p 2000

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
Protected Bonds Luis M. Viceira TN available long-run allocation policy of the Harvard University endowment. These changes included a sharp reduction of the allocation to U.S. equities and U.S. nominal bonds, and a significant investment in the new U.S. Treasury InflationProtected Securities (TIPS). This case focuses on the analysis that led HMC management to recommend such changes to the board. Teaching Purpose: To provide students with ample opportunities to discuss historical versus portfolio analysis, the Capital Asset Pricing Model, nominal and inflation-indexed bonds, the role of long-term bonds in the portfolio of long-horizon investors, and the organization of investment companies (benchmarking, compensation, external versus internal management, etc.). Subjects: Bonds; Financial instruments; Higher education; Investment management; Investments; Portfolio management A set of five exercises in capital budgeting. Student calculates and compares various decision criteria (including IRR and NPV) for capital investment projects. This is an introductory case, where relevant cash flows are provided, and the focus is on the discounting mechanics and the decision to invest. In addition, one exercise directly probes the link between positive NPV projects, and value added to the shareholders. The final "exercise" is a three page mini-case analyzing Lockheed's decision to invest in the TriStar L-1011 Airbus project. This drives home the importance of discounting and NPV, and shows the adverse effect of a negative NPV project on shareholder value. Subjects: Aerospace industry; Capital budgeting; Capital investments; Present value; Project evaluation; Securities analysis An individual is considering the development of a new restaurant. To make the decision, she uses NPV analysis to determine whether she should undertake the investment, and if so, the optimal size of the investment. Teaching Purpose: Introduces net present value analysis. Subjects: Capital budgeting; Present value; Restaurants

Chapter 7 Capital Budgeting Process and Techniques Investment HBS aerospace Analysis and 291031 Fortune 500 Lockheed Tri 6p 1968-1973 Star TN available Michael E. Edleson

Ginny's Restaurant (Exercise) Mark Mitchell

HBS 201099 2p TN available

N/A

Chapter 8 Cash Flows and Capital Budgeting For more information, visit www.hbsp.harvard.edu/educators or call (800) 545-7685 Outside the U.S. and Canada, call (617) 783-7600 Email inquiries: [email protected]

Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
A-Rod: Signing the Best Player in Baseball Randolph B. Cohen; Jason Wallace HBS 203047 14p TN available Texas Sports/entertainment $126.5 million revenues 2000 Analyzes a large investment decision considered by the Texas Rangers in 2000: whether to spend $252 million for the services of shortstop Alex Rodriguez. The signing was probably the most controversial sports contract of the past decade. Teaching Purpose: 1) To teach students to evaluate a complex investment decision--the signing of the largest player contract in baseball history (was $252 million too high a price to pay?)--as well as to look at regression analysis, complex conditional cash flows, and discounting; and 2) to consider the difference between correlation and causation, the nature of insurance, and the long-run benefits of brand improvement. Subjects: Brand management; Cash flow; Insurance; Investments; Present value; Regression analysis; Sports In January 2001, Mary Linn, VP of finance for Ocean Carriers, a shipping company with offices in New York and Hong Kong, was evaluating a proposed lease of a ship for a three-year period, beginning in early 2003. The customer was eager to finalize the contract to meet his own commitments and offered very attractive terms. No ship in Ocean Carrier's current fleet met the customer's requirements. Mary Linn, therefore, had to decide whether Ocean Carriers should immediately commission a new capsize carrier that would be completed two years hence and could be leased to the customer. Teaching Purpose: Provides the opportunity for students to make a capital budgeting decision. The key pedagogical objective is to develop an understanding of how discounted cash flow analysis can be used to make investment and corporate policy decisions. Subjects: Asia; Capital budgeting; Cash flow; Present value; Sales forecasting; Shipping; Valuation Presents a capital budgeting problem. Whirlpool Europe is evaluating an investment in an enterprise resource planning (ERP) system that would reorganize the information flow throughout the company. Students derive the cash flows from working capital, sales, and other improvements along with the cost of the investment. Teaching Purpose: Students evaluate the potential investment using a discount cash flow analysis. Subjects: Appliances; Capital budgeting; Cash

Ocean Carriers Erik Stafford; Angela Chao; Kathleen S. Luchs

HBS 202027 6p TN available

New York, Hong Kong shipping 2001

Whirlpool Europe Richard S. Ruback ; Sudhakar Balachandran; Aldo Sesia

HBS 202017 7p TN available

Italy Home appliances 1998

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
flow; ERP; Europe; Forecasting; Investments; Present value Specialty chemical company Dixon must decide whether to acquire Collinsville, a business in a new segment, and how much to pay. Teaching Purpose: Practice in applying free cash flow valuation methods. ubjects: Acquisitions; Capital budgeting; Capital costs; Cash flow; Chemicals; Forecasting; Present value; Valuation The management of an electronics company is attempting to decide whether to use a single hurdle rate for all projects or to move to a system of different hurdle rates for each of its two divisions. The divisions differ substantially in terms of risk and seem to have substantially different costs of capital. Teaching Purpose: Estimation of cost of capital based on the capital asset pricing model. Subjects: Capital costs; Electronics; Models; Risk assessment; Risk management; Valuation Ameritrade Holding Corp. is planning large marketing and technology investments to improve the company's competitive position in deepdiscount brokerage by taking advantage of emerging economies of scale. In order to evaluate whether the strategy would generate sufficient future cash flows to merit the investment, Joe Ricketts, chairman and CEO of Ameritrade, would need an estimate of the project's cost of capital. There is considerable disagreement as to the correct cost of capital estimate. A research analyst pegs the cost of capital at 12%, the CFO of Ameritrade uses 15%, and some members of Ameritrade management believe that the borrowing rate of 9% is the rate by which to discount the future cash flows expected to result from the project. There is also disagreement as to the type of business that Ameritrade is in. Management insists that Ameritrade is a brokerage firm, whereas some research analysts and managers of other online brokerage firms suggest that Ameritrade is a technology/Internet firm. Teaching Purpose: A two-day case to estimate the cost of capital that Ameritrade should employ in evaluating the proposed large investments in marketing and technology. The lesson plan builds on the prior cases in the Risk &

Dixon Corp.: The Collinsville Plant (Abridged) Peter Tufano; Ronald W. Moore Concordia Electronic Systems Test Thomas R. Piper

HBS 201097 14p

United States Chemicals

HBS 298 2p

United States electronics 1996

Chapter 9 Risk and Capital Budgeting Cost of Capital at HBS Omaha, NE brokerage Ameritrade 201046 $77 million revenues 24p 1997 Mark Mitchell; TN available Erik Stafford

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
Return module. Uses the capital asset pricing model to estimate Ameritrade's cost of capital. Focus is on CAPM variables such as the risk free rate, market risk premium, and beta. Students will use regression analysis to directly calculate the beta estimates. Arguments will be made as to which comparable firms (brokerage firms or Internet firms) should be used to obtain beta estimates. Subjects: Capital budgeting; Capital costs; Capital markets; Financial services; Holding companies; Regression analysis; Valuation Presents recommendations for hurdle rates of Marriott's divisions to select by discounting appropriate cash flows by the appropriate hurdle rate for each division. Subjects: Capital costs; Capital structure; Cash flow; Hotels & motels; Restaurants; Valuation The Lex Service company has grown to become a large multidivisional company with a substantial capital budget. In 1993, the board was reviewing its capital budgeting procedures. Specifically, it sought to determine the company's cost of capital and whether it should use different hurdle rates for different divisions. Teaching Purpose: To introduce practical techniques for estimating the cost of equity using CAPM, and designing discount rates appropriate for businesses of different risk. ubjects: Automotive supplies; Capital budgeting; Capital costs; United Kingdom

Marriott Corp.: The Cost of Capital Richard S. Ruback Lex Service PLC: Cost of Capital W. Carl Kester; Kendall Backstrand

HBS 298101 11p TN available

hotels and restaurants large 1988

HBS 296003 12p

United Kingdom automotive $2.0 billion revenues 1993

Chapter 10 Market Efficiency and Modern Financial Management Follow the U. of Hong Hong Kong Insiders or Kong telecommunications Follow the HKU147 News: The Case 20p of the Pacific TN available CyberWorks Ltd. Su Han Chan; Ko Wang; Mary Ho

Since the completion of its merger deal with Cable & Wireless HKT Ltd. in August 2000, Pacific Century CyberWorks Ltd. had been gripped by the full teeth of the bear. By early April 2001, the counter had seen its share price plummet by nearly 90%. While many retail investors in Hong Kong were mourning their losses, some corporate insiders managed to find a clean exit route and were able to earn substantial profits. An interesting question to the general investors was: had they followed the inside track, would they have been able to beat the market? Teaching Purpose: Explores issues of insider dealing and market efficiency. Helps students to understand the legal and regulatory environment surrounding insider dealings in Hong Kong.

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
Explores the delicate linkage between prices, trading, and information within the framework of efficient markets. Subjects: Asia; Insider trading; Telecommunications Exchange-traded funds (ETFs) and HOLDRS (Holding Company Depositary Receipts) represent recent and highly successful capital market innovations. HOLDRS closely approximates a buy-and-hold strategy, and Merrill Lynch believes the product has significantly lower tax and other costs than ETFs. The firm is considering broadening the market for HOLDRS by introducing a new 50-stock basket, "Market 2000+ HOLDRS," that would hold 50 of the world's top-capitalized stocks. Teaching Purpose: A vehicle to discuss the advantages and disadvantages of exchange-traded funds and HOLDRS over more conventional index and sector mutual funds, and in so doing, expose students to the significant tax and other costs borne by fund investors. Subjects: Capital markets; Innovation; Investment management; Investments; Mutual funds; Stocks; Taxation On August 11, 1998, United States' Amoco Corp. (NYSE: AR) and the British Petroleum Co. (BP), p.l.c. (NYSE: BP), announced the BPC merger with Amoco. This deal was the largest industrial merger to date, and created the world's thirdlargest oil company, BP (NYSE: BP). This case focuses on the issues surrounding the integration of the employee-defined contribution plans at Amoco and the U.S. subsidiary of BP. One of them was that the pre-merger plans had very different investment structures. While Amoco had offered its employees only low-cost index funds, BP America had relied on actively managed mutual funds. The new plan, which would have more than 40,000 participants and $7 billion in assets, would have to either choose one of these approaches, or try to integrate them into one single structure. Teaching Purpose: To provide students with ample opportunities to discuss issues such as market efficiency, active versus passive (indexed) asset management, mutual fund performance evaluation, the design of private pension plans, and the mutual fund industry. Subjects: Capital markets; Efficient markets; Financial planning; Investments; Mutual funds;

Merrill Lynch HOLDRS Andre F. Perold; Simon Brown

HBS 201059 17p

New York Financial services Fortune 500 2000

The Harmonized Savings Plan at BP Amoco Luis M. Viceira

HBS 201052 17p

Chicago, IL pension fund 1999

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
Pension funds; Pension plans; Performance measurement; Petroleum Chapter 11 Overview of Long-Term Financing The Major HBS N/A Global Stock 902169 Exchanges 14p (HBS background note) Ashish Nanda; Thomas J. DeLong; Lynn Villadolid Roy Chapter 12 Capital Structure: Theory and Taxes Hutchison Ivey Hong Kong Whampoa Ltd.: School/UWO investments The Capital 99N021 large Structure 26p 1996 Decision TN available Andrew Karolyi; Larry Wynant; Geoff Crum; Peter Yuan Hutchison Whampoa was considering strategies for its long-term capital structure. The HK$35 billion Hong Kong-based conglomerate had ambitious growth plans in multiple business sectors in different geographies. Traditionally, like many of its domestic peers, Hutchison had relied entirely on short- to medium-term bank loans. Its demand for long-term financing, attractive rates in other capital markets (especially the United States), and concern about a more diversified investor base had led Hutchison to explore other financing options. In particular, the company was debating the benefits of a Yankee Bond Offering. At the time, Hutchison had already approached Moody's and Standard & Poor's for a bond rating. Subjects: Capital budgeting; China; Financial strategy; International finance Describes the major global stock exchanges. Subjects: Investment banking; Management of professionals; Professional services; Stock exchanges

Chapter 13 Capital Structure: Nontax Determinants of Corporate Levarage Ford Motor Co.'s HBS Dearborn, MI Value 201079 automobiles Enhancement 17p $162 billion revenues Plan (A) B case 2000 available Andre F. Perold

In April 2000, Ford Motor Co. announced a shareholder Value Enhancement Plan (VEP) to significantly recapitalize the firm's ownership structure. Ford had accumulated $23 billion in cash reserves and under the VEP would return as much as $10 billion of this cash to shareholders. In exchange for each share currently held, the plan would give stockholders one new share plus the choice of receiving $20 either in cash or additional new Ford common shares. Shareholders electing to receive cash would be taxed on these distributions at capital gain rates. Among other things, the plan provided a means

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
for the Ford family to obtain liquidity without having to dilute their 40% voting interest (even though they own only 5% of the shares outstanding.) Students must wrestle with the following questions: Why was Ford proposing this transaction instead of a traditional share repurchase or a cash dividend? How did the interests of the Ford family factor into this decision, and what did the transaction imply about the future involvement of the family in the company? Why was Ford distributing such a significant amount of cash at this particular point in time? Did the distribution signal a change in the company's appetite for making acquisitions or future capital expenditures? If shareholders collectively elected to receive less than $10 billion in cash, how would Ford distribute the remaining cash? Teaching Purpose: Provides a rich setting in which to discuss one of the most basic decisions corporations face: how to return cash to shareholders. It is a vehicle for discussing corporate financial policies and capital structure decisions--particularly as they relate to cash dividends and share repurchases--in a context where corporate control questions and the interests of multiple constituencies must be understood. Subjects: Automobile industry; Capital structure; Cash flow; Dividends; Financial strategy; Stockholders; Stocks; Taxation Less than a year after Sealed Air embarked on a program to improve manufacturing efficiency and product quality, the company borrowed almost 90% of the market value of its common stock and paid it out as a special dividend to shareholders. Management purposefully and successfully used the leveraged recapitalization as a watershed event, creating a crisis that disrupted the status quo and promoted internal change, which included establishing a new objective, changing compensation systems, and reorganizing manufacturing and capital budgeting processes. Teaching Purpose: Provides a context in which to explore how financing decisions affect organizational structure, management decision making, and firm value. Can be used as an introductory finance case in which the students apply basic cash flow forecasting techniques to explore alternative dividend and capital structure decisions. For more advanced finance classes, the

Sealed Air Corp.'s Leveraged Recapitalization (A) Karen H. Wruck; Brian Barry

294122 21 B case available TN available

New Jersey specialty packaging $385 million sales 1989

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
concept of free cash flow, its effect on stock market prices and firm value, and the disciplinary role of high leverage can be analyzed. Subjects: Capital structure; Control systems; Debt management; Dividends; ESOP; Management of change; Management of crises; Recapitalization UST, Inc. is a very profitable smokeless tobacco firm with low debt vis-a-vis other firms in the tobacco industry. The setting for the case is UST's recent decision to substantially alter its debt policy by borrowing $1 billion to finance its stock repurchase program. Teaching Purpose: Introduction to optimal capital structure with emphasis on calculation of interest tax shields. Subjects: Capital structure; Debt management; Long term financing; Taxation; Tobacco industry A major U.K.-based multinational is reevaluating its leverage policy as it restructures its business. The treasury team models the tradeoffs between the benefits and costs of debt financing, using Monte Carlo simulation to estimate the savings from the interest tax shields and expected financial distress costs under several sets of leverage policies. The group treasurer (CFO) must decide whether and how the simulation results should be incorporated into a recommendation to the board of directors, and more generally, what recommendation to make regarding the firm's leverage policy. Teaching Purpose: Introduces students to the static-tradeoff theory of capital structure, as actually implemented in a major firm. Also introduces students to the use of simulation to capture the impact of different business policies under uncertainty. Subjects: Capital structure; Consumer goods; Debt management; Financial strategy; Food; Models; United Kingdom Contrary to popular wisdom, buybacks don't create value by raising earnings per share. But they do indeed create value, and in two very different ways. First, a buyback sends signals about the company's prospects to the market-hopefully, that prospects are so good that the best investment managers can make right now is in their own company. But investors won't see it that way if other, negative, signals are coming from the company, and it's rarely a good idea for companies in high-growth industries, where investors expect that money to be spent pursuing

Debt Policy at UST, Inc. Mark Mitchell

HBS 200069 14p TN available

Greenwich, CT tobacco $1.4 billion revenues 1999

Diageo plc George Chacko; Peter Tufano; Joshua Musher

HBS 201033 16p TN available

United Kingdom consumer goods, food, drinks $12 billion revenues 2000

Is a Share Buyback Right for Your Company? Justin Pettit

HBR Reprint R0104k 7p

N/A

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
new opportunities. Second, when financed as a debt issue, a buyback is essentially an exchange of equity for debt, conferring the traditional benefits of leverage--a tax shield and a discipline for managers. For such a buyback to make sense, a company would need to have taxable profits in need of shielding, of course, and be able to predict its future cash flows fairly accurately. Justin Pettit has found that managers routinely underestimate how many shares they need to buy to send a credible signal to the markets, and he offers a way to calculate that number. He also goes through the iterative steps involved in working out how many shares must be purchased to reach a target level of debt. Then he takes a look at the advantages and disadvantages of the three most common ways that companies make the actual purchases--open-market purchases, fixed-price tender offers, and auction-based tender offers. When a company's performance is lagging, a share buyback can look attractive. Unfortunately, a buyback can backfire--unless executives understand why, when, and how to use this powerful and risky tool. Subjects: Capital markets; Capital structure; Dividends; Equity financing; Financial strategy; Stocks Chapter 14 Dividend Policy Continental Stanford GSB Airlines I F256 22p George G.C. Parker; Margot Sutherland Houston, TX airline $8 billion revenues 1999 On April 9, 1999, Gordon Bethune, chairman and CEO of Continental Airlines, reviewed a memorandum to the company's board of directors recommending a repurchase (stock buyback) of up to $500 million of common stock. The announcement of the buyback, assuming board approval, would accompany notification to the investment community of Continental's 16th consecutive profitable quarter with first quarter net income of $78 million. The airline, based in Houston, Texas, was the fifth largest U.S. airline based on revenue passenger miles and had just logged yet another year of record revenue and earnings. At the April 9, 1999 closing market price of $40.88, the $500 million repurchase would reduce the number of shares outstanding by 12.2 million shares, or 16% (on a fully diluted basis). Bethune believed the best signal of management's current expectations for Continental's continued strong financial performance was to announce a major stock buyback program. Teaching Purpose: To assess

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
the pros and cons of the stock buyback decision. Subjects: Airline industry; Financial management; Financial strategy; Stocks A Wall Street analyst has just learned that FPL (the holding company for Florida's largest electric utility) may cut its dividend in several days despite a 47-year streak of consecutive dividend increases. In response to the deregulation of the electric utility industry, FPL has substantially revised its competitive strategy over the past several years. The analyst must decide whether a change in dividend policy will be a part of FPL's financial strategy in this deregulated environment. Teaching Purpose: Allows students to examine how firms set and change dividend policy. Also provides a background for examining why firms pay dividends and whether dividend policy matters. Subjects: Corporate strategy; Deregulation; Dividends; Electric power; Financial strategy; Securities analysis FPL's dividend policy and the reaction of the financial markets are examined. Subjects: Corporate strategy; Deregulation; Dividends; Electric power; Financial strategy; Securities analys

Dividend Policy at FPL Group, Inc. (A) Benjamin C. Esty; Craig F. Schreiber

HBS 295059 17p TN available

Florida electric utility $5.3 billion revenues 1994

Dividend Policy at FPL Group, Inc. (B) Benjamin C. Esty; Craig F. Schreiber

HBS 295106 1 page

Chapter 15 Entrepreneurial Finance and Venture Capital Yale University HBS New Haven, CT Investments 201048 university Office: July 2000 25p 2000 TN available Joshua Lerner

Dell Ventures Paul A. Gompers; CarinIsabel Knoop; Cate Reavis

HBS 200062 25p TN available

United States technology $25 billion revenues 2000

David Swensen, chief investment officer at Yale University, reviews the $10 billion endowment strategy, which places an unusually heavy emphasis on private equity and other illiquid securities. Changing market conditions in July 2000 cause him to rethink historically successful approaches. Teaching Purpose: To illustrate the broad range of private equity investments and the complex motives of investors. Often used as an introductory case. Subjects: Academic administration; Capital markets; Education; Financial instruments; Incentives; Investment management; Leveraged buyouts; Venture capital Describes the rationale behind the strategy and structure of Dell Computer Corp.'s VC arm, Dell Ventures. While Dell Ventures had a phenomenal year one, it faced a number of challenges including dealing with market risks, finding and retaining talent, maintaining focus, and gaining

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
the attention of Wall Street. Subjects: Corporate strategy; Decision making; Financial management; Global Research Group; Organizational structure; Strategic alliances; Venture capital A quasi-government organization seeks to stimulate entrepreneurship in Japan by making venture capital investments. The organization of the fund, identification of transactions, and oversight of portfolio firms pose considerable challenges. Teaching Purpose: To illustrate the challenges associated with transplanting the venture capital model to other settings. Subjects: Business government relations; Entrepreneurial finance; Financial strategy; Japan; Venture capital ZEFER, a young Internet professional service firm, is considering its expansion options. Organic growth versus growth by acquisition is a central theme. The firm's financing strategy will be determined by its business strategy. Subjects: Consulting; Entrepreneurial finance; Growth strategy; Information technology; Internet; Professional services

New Business Investment Co.: October 1997 Joshua Lerner; Lee Branstetter; Takeshi Nakabayashi

HBS 299025 28p TN available

Japan venture capital 4 employees 1998

ZEFER: November 1998 Paul A. Gompers

HBS 299032 30p TN available

Boston, MA internet professional services $2 million revenues 30 employees 1998

Chapter 16 Investment Banking And the Public Sale of Equity Securities Acer Computec HBS Mexico, United States Latino America 299024 computers 13p $323 million revenues Alberto Moel; 1996 Markus F. Mullarkey

Knoll Furniture: Going Public

HBS 202114 26p

United States furniture $600 million revenues 1997

Acer Computer Latino America, a joint venture between leading Taiwanese computer manufacturer Acer and a group of Mexican and Chilean investors, was completing preparations for its long-awaited IPO in Mexico. The company had hoped to go public well before, but Mexico's 1994 devaluation had derailed the firm's offering. However, market conditions in Mexico were still unsettled, and in order to prevent a weak offering, the firm was considering including an American Depositary Receipt (ADR) issue in the offering plans. The case deals with the institutional context, costs, and benefits of an ADR issue, and with the strategic and tactical details involved in an ADR listing. Teaching Purpose: To introduce students to ADRs, and to present the issues involved in a cross-border initial public offering. Subjects: Capital markets; Computer industry; Financing; IPO; Joint ventures; Mexico; Underwriting Examines the decisions of John Lynch, president and CEO of Knoll Furniture, to go public in early 1997. Knoll went private in an LBO in 1996 and

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
Paul A. Gompers; Jon Asher Daniels Warburg Pincus, the LBO sponsor, wants Lynch to take Knoll public. Lynch needs to weigh the positive and negative issues of a public offering. Teaching Purpose: To understand the decision to go public. Subjects: Entrepreneurial finance; Furniture; IPO; Venture capital Health Development Corp. (HDC) owns and operates health clubs in the Greater Boston Area. HDC engaged a local investment banker to explore a sale of the company. The most likely buyer views HDC's prior purchase of real estate as a negative. HDC's management is convinced the purchase enhanced value, and a discounted cash flow analysis confirms that it was a substantially positive net present value decision. Nevertheless, the real estate reduces the valuation according to the approach used by the potential buyer. The challenge is to structure a transaction that allows HDC to realize its full value. Teaching Purpose: Shows the relation between discounted cash flow techniques and multiples. Subjects: Cash flow; Financial analysis; Present value; Valuation A closed-end mutual fund's decision to study option trading provides an opportunity to study the profit profile and pricing of multiple option investment strategies (e.g., buy a call, buy a put, write a call, buy stock-write call, etc.). This case is designed to provide students with an introduction to option pricing. Subjects: Derivatives; Investment management; Mutual funds; Option pricing; Risk management; Securities Describes the pay packages offered to Sara Becker, a graduating MBA student, with great detail about two stock option packages (one of which is an indexed option package). She gathers information and attempts to value those compensation offers. Teaching Purpose: To help students understand stock option valuation. Subjects: Compensation; Stock options; Valuation DigaMem is a semiconductor firm with a promising new technology, but its CEO faces a

Chapter 17 Long Term Debt and Leasing Health HBS Boston, MA Development 200049 fitness Corp. 6p $22 million revenues TN available 2000 Richard S. Ruback

Chapter 18 Options Basics Keller Fund's HBS Option 295096 Investment 5p Strategies TN available W. Carl Kester

North America Investment mgt. 1994

Chapter 19 Black-Scholes and Beyond Sara's Options HBS N/A 201005 Peter Tufano; 8p Brian Hall TN available

DigaMem, Inc.

HBS 203002

San Jose, CA semiconductors

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
George Chacko; Eli Peter Strick; Andrew Kuhlman; Chris Smith Bidding for Antamina Peter Tufano; Alberto Moel 27p 1998 difficult financing problem. He is considering issuing a new security: a floorless convertible bond, also known as a "toxic" convertible. Subjects: Bonds; Derivatives; Financial analysis; Financial instruments; Financial management; Financing; Options; Semiconductors In June 1996, executives of the multinational mining company RTZ-CRA are contemplating bidding to acquire the Antamina copper and zinc mine in Peru. The Antamina project is being offered for sale by auction as part of the privatization of Peru's state mining company. RTZ-CRA has to determine what the mine is worth, and to recommend whether and how RTZCRA should bid in the upcoming auction. The bidding rules put in place by the Peruvian government dictate that each company's bid contain two components: an up-front cash amount and the amount the bidder will invest to develop the property, if development is warranted after further exploration is completed. Teaching Purpose: Introduces students to real option valuation of a natural resource project. This is underscored by the auction rules in place, which force firms to approach the problem as a real option. Designed to be used as an introduction to real option valuation, and can also be used in an advanced course in negotiation or corporate finance to discuss the incentive effects of different auction procedures. Subjects: Bids; Capital budgeting; Mining; Privatization; South America; Valuation A large Mexican conglomerate, active in tourism, real estate, and steel, is faced with difficult macroeconomic conditions beginning with the Peso crisis of December 1994. The conglomerate had extensive dollar-indexed liabilities, and was caught in a crunch when the Mexian Peso lost half its value against the dollar in late 1994. Even though a large portion of its revenues were also dollar-indexed, thus ostensibly providing a foreign exchange hedge, most of the conglomerate's customers were Mexican nationals. With the ensuing recession in 1995, the revenue base dried up, but the dollar liabilities were still outstanding. The case covers the period from late 1994 to February 1995, and deals with the financial and operational decision that Sidek

HBS 297054 11p TN available

Peru mining $10 billion revenues 1996

Chapter 20 International Financial Management Grupo Sidek (A) HBS Mexico Kenneth A. 297022 real estate and steel Froot; Alberto 21p $2 billion revenues Moel 10,000 employees 1994-1995

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
had to face at that time. Teaching Purpose: To demonstrate the effect of foreign exchange and macroeconomic volatility on the real and financial assets and liabilities of a company with large foreign exchange and economic exposure.Subjects: Debt management; Foreign exchange; Management of crises; Mexico; Real estate; Steel; Tourism Supplements the (A) case. Designed to be handed out midway through class. Subjects: Debt management; Foreign exchange; Management of crises; Mexico; Real estate; Steel; Tourism

Grupo Sidek (B) Kenneth A. Froot; Alberto Moel

HBS 297023 5p

Mexico real estate and steel $2 billion revenues 10,000 employees 1994-1995

Chapter 21 Risk Management and Financial Engineering American HBS Barrick 293128 Resources Corp.: 25p Managing Gold TN available Price Risk Peter Tufano; Jon D. Serbin

North America gold mining $540 million revenues 1992

Aspen Technology, Inc.: Currency Hedging Review Peter Tufano; Cameron Poetzscher

HBS 296027 19p TN available

New England/Global software $57 million revenues 1995

Managing the risk of changing prices of gold is central to the business strategy of American Barrick Resources Corp., one of North America's largest and most successful gold mining firms. The case contrasts this firm's hedging policies with those of its rivals that do not hedge and details the wide range of hedging products (gold loans, forwards, options, spot deferred contracts) used to manage price risk. In 1992 the management of American Barrick is pleasantly surprised by unexpected new gold finds, but this new production places demands on the firm's hedging program and tests the firm's commitment to hedging when prices of gold and of many hedging vehicles are unattractive. Teaching Purpose: Challenges students to consider the proper role of hedging in a firm's business strategy in light of vastly different approaches taken by gold mining firms. Permits students to consider which firms might be more likely to actively manage gold price risk and to examine the effect of hedging on a firm's capital budgeting decision. Finally, allows students to examine the full range of devices available to manage gold price risk. Subjects: Hedging; Mining; Risk management; Securities The chief financial officer of a rapidly-growing U.S.-based software firm that sells its processcontrol software to industrial users around the globe must review the goals, strategies, and policies of the firm's currency hedging program. This review is prompted by changes in the firm's business, notably its acquisition of a United Kingdom subsidiary, other growing overseas

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
expenses, and its recent initial public offering. Teaching Purpose: Intended to allow students to analyze how a small, young firm's business strategy creates currency exposure and a need to manage this exposure. Designed to allow students to explore the goals and purposes of currency hedging, the measurement of exposures, and appropriate policies to be followed. Subjects: Foreign exchange; Hedging; Risk assessment; Risk management; Software After initiating a hedging strategy, Apache Corp. is interested in revisiting its decision to determine if hedging is value-adding. This case investigates how the company initially decided to hedge against commodity price risk and how it implemented its hedging practice. Also examines when financial theory argues hedging is valueadding. Teaching Purpose: To determine when a company should hedge. Subjects: Commodities; Commodity markets; Futures; Hedging; Options; Risk management Honeywell was the first to introduce an integrated risk management program that combined traditionally insured risks with other risks in an insurance contract. This case identifies the benefits of integrating risks and shows how such an approach might be valuable. Teaching Purpose: To show the value that might be achieved by aggregating risks into a single portfolio. Subjects: Derivatives; Instruments; Insurance; Options; Risk assessment; Risk management Conventional finance theory demonstrates that, under simplistic assumptions, firms cannot add to shareholder value through the use of risk management activities. Modern finance theory recently has begun to carefully consider and examine those circumstances under which firms can add to shareholder value. This note briefly reviews the major ideas prevalent in both conventional and modern finance literature regarding the potential benefits of risk management. Teaching Purpose: Enables students to question the conventional wisdom that assumes risk management activities are always beneficial to a corporation. In addition, students will examine five specific conditions under which financial risk management can demonstrably add to shareholder value.Subjects: Financial management; Hedging; Risk management

Risk Management at Apache Lisa Meulbroek; Puja Malhotra

HBS 201113 24p TN available

oil & gas exploration 2001

Honeywell, Inc. and Integrated Risk Management Lisa Meulbroek; Jonathan Barnett

HBS 200036 22p TN available

Global control products and services $7.3 billion revenues 1997

Why Manage Risk? (HBS Background Note) Peter Tufano; Jonathan S. Headley

HBS 294107 6p

N/A

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
Chapter 22 Strategic and Operational Financial Planning SureCut Shears, HBS United States Inc. 297013 manufacturing 8p $30 million revenues W. Carl Kester TN available 1996

A bank loan officer must determine whether to waive convenants and extend terms on a line of credit granted to SureCut Shears. At issue is whether the inability of SureCut to pay down its line of credit is due to a temporary cyclical downturn or other long-term financial problems. Teaching Purpose: To expose students to the impact of a cyclical downturn on financial performance, and to provide practice in modeling business cycles in pro forma forecasts. Subjects: Banking; Credit; Forecasting; Pro forma financial statements; Recessions The owner of a rapidly growing retail lumber company is considering the financial implications of continued rapid growth. The magnitude of the company's future financing requirements must be assessed in the context of the company's access to bank finance and/or equity finance. Teaching Purpose: Development of skills in financial analysis, financial forecasting, and financial planning. A rewritten version of an earlier case. Subjects: Financial analysis; Financial planning; Forecasting; Loan evaluation Be Our Guest is a rapidly growing equipment rental company with substantial seasonality in its revenues and profits. In the spring of 1998, the senior management team is reviewing its financial plans in preparation for a meeting with the company's bank. The case provides an opportunity to forecast financial needs and consider the appropriate structure and amount of bank borrowing. Subjects: Banking; Financial analysis; Financial planning; Financing; Small business Dell Computer Corp. manufactures, sells, and services personal computers. The company markets its computers directly to its customers and builds computers after receiving a customer order. This build-to-order model enables Dell to have much smaller investment in working capital than its competitors. It also enables Dell to more fully enjoy the benefits of reduction in component prices and to introduce new products more quickly. Dell has grown quickly and has been able to

Clarkson Lumber Co. Thomas R. Piper

HBS 297028 6p TN available

United States retail lumber small: $3 million revenues 1991

Be Our Guest, Inc. Dwight B. Crane; Penny Joseph

HBS 299031 13p TN available

Boston, MA equipment rental $2,650,000 revenues 1994-1997

Chapter 23 Short Term Financial Management Dell's Working HBS Round Rock, TX Capital 201029 high technology 7p 1997 Richard S. TN available Ruback; Aldo Sesia

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
finance that growth internally by its efficient use of working capital and its profitability. This case highlights the importance of working capital management in a rapidly growing firm. Subjects: Capital; Computer industry; Financial management The owner of a rapidly growing retail lumber company is considering the financial implications of continued rapid growth. The magnitude of the company's future financing requirements must be assessed in the context of the company's access to bank finance and/or equity finance. Teaching Purpose: Development of skills in financial analysis, financial forecasting, and financial planning. A rewritten version of an earlier case. Subjects: Financial analysis; Financial planning; Forecasting; Loan evaluation Be Our Guest is a rapidly growing equipment rental company with substantial seasonality in its revenues and profits. In the spring of 1998, the senior management team is reviewing its financial plans in preparation for a meeting with the company's bank. The case provides an opportunity to forecast financial needs and consider the appropriate structure and amount of bank borrowing. Subjects: Banking; Financial analysis; Financial planning; Financing; Small business

Clarkson Lumber Co. Thomas R. Piper

HBS 297028 6p TN available

United States retail lumber small: $3 million revenues 1991

Be Our Guest, Inc. Dwight B. Crane; Penny Joseph

HBS 299031 13p TN available

Boston, MA equipment rental $2,650,000 revenues 1994-1997

Chapter 24 Mergers, Acquisitions, And Corporate Control Cox HBS Atlanta, GA Communications, 201003 communications Inc.--1999 18p $1.8 billion revenues TN available 1999 George Chacko; Peter Tufano

Covers the decision of how much external financing a firm needs and what securities the firm should issue to raise this financing. Cox Communications is a major player in the cable industry, which is consolidating due to technological changes/capabilities brought about by the Internet. The corporate treasury of Cox Communications needs to decide how much external financing is necessary to finance a series of intra-industry acquisitions that Cox has recently undertaken. The choices are plain-vanilla equity, debt, asset sales, and a new equity-linked derivative known as FELINE PRIDES, offered by Merrill Lynch. The treasurer and his team must make this decision facing the usual market constraints. There are also some special constraints including the need to maintain financial flexibility for further acquisitions and the need to limit the dilution of Cox's largest shareholder, who owns nearly 70% of the firm. Teaching Purpose: How to

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
make long- and short-term financing decisions, taking into account specific business conditions and risk. Subjects: Capital structure; Communications industry; Debt management; Innovation; Long term financing; Securities; Short term financing A major paper company is considering the acquisition of assets from a company that is threatened by a hostile takeover. The acquisition can be evaluated in terms of industry attractiveness, comparative advantage, and cash flow analysis. Teaching Purpose: Development of project cash flows and an appropriate rate at which to discount the cash flows. Estimation of a terminal value. Consideration of valuation methods other than discounted cash flow. Subjects: Acquisitions; Capital budgeting; Capital costs; Financial management; Forest products; Project evaluation; Securities analysis; Valuation A turnaround expert must determine whether a firm in distress is worth more as a going concern than its liquidation value. If so, the finances of the firm must be restructured consistent with the bargaining power of the holders of the various securities. The restructuring requires a delay in principal repayment, rate concessions, and a debtfor-equity swap. Teaching Purpose: Restructuring of firms in financial distress. Subjects: Bankruptcy; Debt management; Restructuring; Valuation A large restaurant chain undergoes an LBO and subsequent recapitalization. Financial and operating problems at the company force it to consider various restructuring options, including a "Prepackaged" Chapter 11 exchange offer to its public bondholders. Teaching Purpose: To have students assess the financial soundness of a leveraged recapitalization; to teach the basics of U.S. bankruptcy reorganization practices, including prepackaged Chapter 11; to get students to understand the special problems presented by the restructuring of publicly-traded debt. A rewritten version of two earlier cases. Subjects: Bankruptcy; Negotiations; Recapitalization; Restaurants; Restructuring; Valuation National Convenience Stores, Inc. (NCS) is seeking to emerge from Chapter 11. Central to the nature of the reorganization plan is the

Atlantic Corp. (Abridged) Thomas R. Piper

HBS 297015 14p TN available

United States paper $6.5 billion revenues 1984

Chapter 25 Bankruptcy and Financial Distress Infinity Carpets, HBS United States carpet Inc. 299014 manufacture 14p $55 million revenues Thomas R. Piper; 1990 Ronald W. Moore

Flagstar Cos., Inc. Stuart C. Gilson; Jeremy Cott

HBS 299038 35p

Spartanburg, SC restaurants $2.5 billion revenues 1995-1997

National Convenience Stores, Inc.

HBS 294068 21p

Valuation Houston, TX convenience foods

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Harvard Business School Publishing Case Map for Smart, Megginson, and Gitman: Corporate Finance (South-Western, 2004)
TN available Steven R. Fenster; Stuart C. Gilson; Roy Burstin $900 million revenues 1992 determination of NCS's enterprise value. The various constituencies (secured debt, unsecured debt, etc.) will seek to find an enterprise value that coincides with their interest. The case provides detailed projection data to permit full utilization of the relevant techniques. Teaching Purpose: Recommended to be taught as a business game with groups of students each representing layers in the capital structure. In this manner, the students will benefit from a series of valuation approaches, all influenced by the interests and perspective of each group. Subjects: Bankruptcy; Capital structure; Restructuring;

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