Please use one of the two styles of analysis listed below.
The first type is more technical, as “Using MSFT to demonstrate the optimal capital structure trade-off theory” shows. In such reports, detail number crunching and analysis are used in various parts of the report. To accommodate with this approach, you need have a good understanding and solid grip of the technical tools of the financial analysis.
The second type is more descriptive, as “How Kimberly-Clark Uses Real Options” illustrates. Having collected the data and ratios from the company’s website or other sources, you can literately or descriptively analyze what the issues on hand. The general formats are almost same as those of the more technical ones.
As I understand, some of you are more financially technical, whereas others are less so. I have no preference to either approach, though some number crunching should be in your report.
Case 57 Fonderia di Torino S.P. A.
For this case, you have two choices to write your report: Either replicate the model Using MSFT to demonstrate the optimal capital structure trade-off theory (more quantitative analysis), or follow How Kimberly-Clark Uses Real Options (somewhat quantitative analysis, but more concentrated on the qualitative analysis).
You should try to answer the following questions:
1. Please assess the economic benefits of acquiring the Vulcan Mold-Maker machine. What is the initial outlay? What are the benefits over time? What is an appropriate discount rate? Does the net present value (NPV) warrant the investment in the machine?
2. What uncertainties or qualitative considerations might influence your recommendation? How, if at all, would an inflation rate of 3% (or higher) affect the attractiveness of the Vulcan Mold-Maker? Please estimate the impact on NPV from a change in any of those elements.
3. Should Francesca Cerini proceed with the project?
To completely answer the above questions, you should also consider the following questions (you need not to directly answer these questions). If you can answer the following questions, answers to the above required can be easily identified.
1. What is the basic nature of the problem in this case?
2. What are the cash flows associated with the Vulcan Mold-Maker?
3. What are the cash flows associated with the semiautomated machines?
4. What discount rate did you use? What DCF did you get?
5. Are you uncertain about any of the assumptions? What does a sensitivity analysis of those assumptions reveal?
6. Are there qualitative issues that we should address but which are not reflected in the DCF analysis?
7. What should Francesca Cerini recommend to her board of directors?
Case 58 Negotiations Between Chrysler Corporation and Diamler (attached)
For this case, you have two choices to write your report: Either replicate the model Using MSFT to demonstrate the optimal capital structure trade-off theory (more quantitative analysis), or follow How Kimberly-Clark Uses Real Options (somewhat quantitative analysis, but more concentrated on the qualitative analysis).
You should try to answer the following questions:
1. What is the situation faced by this company? What are the strengths and weaknesses of this company, and those of its counterparty? Why should your company and the counterparty company want to negotiate?
2. What are the likely high and low values of Chrysler? What are those of Daimler-Benz? How did you estimate those values? What are the key value drivers?
3. What are the risks to Chrysler and to Daimler in this transaction?
4. Prepare a specific recommendation for the structure of a proposed combination of Daimler and Chrysler, addressing all of the negotiable items listed in the concluding section of the case. What steps should the decision maker take? What should be said to whom?
