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1 – 5 of 5Craig Furfine and Mitchell Petersen
In April 2012 Bill Nichols, a financial analyst at the real estate investment firm Koenig Capital, was about to enter a unique lease renegotiation. One of Koenig's tenants…
Abstract
In April 2012 Bill Nichols, a financial analyst at the real estate investment firm Koenig Capital, was about to enter a unique lease renegotiation. One of Koenig's tenants, Hasperat Inc., had sixteen years left on its long-term lease of the Kelley Building, a 165,000-square-foot office building in downtown Cleveland. The lease contained a clause giving Hasperat the option to buy the Kelley Building from Koenig. When Nichols tried to place a mortgage on the property to take advantage of low interest rates, he learned that the existence of this option in the lease contract prevented lenders from offering Koenig their lowest rates. As a result, Nichols had been tasked with renegotiating the lease to remove the option clause. This unexpected event offered Nichols the opportunity to use his financial skills. He needed to calculate the fair value of the purchase option to be able to justify to his superiors by how much they should compensate Hasperat. Students will step into the role of Bill Nichols and apply real options modeling techniques to value the purchase option in Hasperat's lease.
After reading and analyzing the case, students will be able to:
Apply real options theory to the valuation of a purchase option in a commercial real estate lease
Identify the common mistakes in applying traditional discounted cash flow (DCF) analysis to financial problems with option components
Apply real options theory to the valuation of a purchase option in a commercial real estate lease
Identify the common mistakes in applying traditional discounted cash flow (DCF) analysis to financial problems with option components
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Mark Jeffery, Chris Rzymski, Sandeep Shah and Robert J. Sweeney
Technology projects are inherently risky; research shows that large IT projects succeed as originally planned only 28 percent of the time. Building flexibility, or real options…
Abstract
Technology projects are inherently risky; research shows that large IT projects succeed as originally planned only 28 percent of the time. Building flexibility, or real options, into a project can help manage this risk. Furthermore, the management flexibility of options has value, as the downside risk is reduced and the upside is increased. The case is based upon real options analysis for an enterprise data warehouse (EDW) and analytic customer relationship management (CRM) program at a major U.S. firm. The firm has been disguised as Global Airlines for confidentiality reasons. The data mart consolidation or EDW marginally meets the hurdle rate for the firm as analyzed using a traditional net present value (NPV) analysis. However, different tactical deployment strategies help mitigate the risk of the project by building options into the project, and the traditional NPV is expanded by the real option value. Students analyze the different deployment strategies using a binomial model compound option Excel macro, and calculate the volatility using Monte Carlo analysis in Excel. A step-by-step tutorial is provided to teach students how to accomplish the real options analysis for a simplified project, and this tutorial is easily generalized by students to the case scenario. In addition to the tactical options, the case also has the strategic growth option of analytic CRM. Students must therefore analyze both the tactical and strategic growth options and make a management recommendation on funding the project and also recommend an optimal deployment strategy to manage the project risk.
The case teaches real options for technology projects. Students learn how to calculate real option values, where the key input of volatility is obtained by Monte Carlo analysis in Excel. Students also learn that the real option value is “real,” resulting from active management mitigating the risk of the project and improving the upside. Most important, students understand the difference between tactical vs. strategic growth options and the important management issues to consider.
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Christopher Lenard and his longtime friend, Kimberly Slater, are exploring the idea of developing a student-housing complex near the University of Wisconsin, Madison, by…
Abstract
Christopher Lenard and his longtime friend, Kimberly Slater, are exploring the idea of developing a student-housing complex near the University of Wisconsin, Madison, by replicating Slater's highly successful, similar development near the University of Florida. Madison seemed to present attractive market and demographic conditions for investment in student housing in the summer of 2012. But before committing a large share of his personal wealth to the project, Lenard needs to conduct a more careful analysis of its potential risks and returns. By putting themselves into the shoes of a budding real estate entrepreneur, students will evaluate both the merits and pitfalls of various approaches to the financial analysis of real estate development projects.
After reading and analyzing the case, students will be able to:
Evaluate the fundamental economic determinants driving the potential gains to real estate development
Explain the merits and deficiencies of tools that can be applied to the financial analysis of real estate development projects, including financial feasibility; developing to a yield on cost; net present value analysis; and real options.
Evaluate the fundamental economic determinants driving the potential gains to real estate development
Explain the merits and deficiencies of tools that can be applied to the financial analysis of real estate development projects, including financial feasibility; developing to a yield on cost; net present value analysis; and real options.
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Agricultural Trade, Farm Management, Economics of Food Safety
Abstract
Subject area
Agricultural Trade, Farm Management, Economics of Food Safety
Study level/applicability
Both undergraduate and postgraduate studies in Agribusiness and Agricultural Economics.
Case overview
The pineapple production sector plays a very significant role in the Ghanaian horticultural industry. Production and export of fresh pineapple has been Ghana’s most developed high-value supply chain. However, the introduction of the GlobalGAP food safety standard in 2007 resulted in a fall in smallholder farmers’ participation in exportable pineapple production and subsequently led to declining trends in pineapple exports. The Ghanaian horticultural industry received quite a number of interventions over the years aimed at revitalizing the horticultural export sector and enhancing international competitiveness. However, the pineapple export sub-sector is still constrained with production and market access challenges meaning the sector struggles to survive.
Expected learning outcomes
The GlobalGAP standard compliance case is an appropriate way of explaining how smallholder farmers make informed decisions concerning the adoption of new farm practices. The case presents a careful evaluation of technical, institutional and socio-economic factors influencing a farmer’s decision to comply or not to comply with the GlobalGAP standard. Students should be able to apply farm management decision-making concepts and tools such as profit maximization and binary choice modelling techniques to explain a farmers’ final decisions on GlobalGAP standard compliance. This case should enable students to appreciate key factors constraining agricultural export trade performance in developing countries. The case should also contribute to students’ understanding of smallholder farmers’ decisions on food safety standards compliance, particularly GlobalGAP, and the challenges associated with the entire compliance process. Moreover, this case should provide students with possible policy considerations geared towards making food safety standards compliance easier, effective and sustainable in developing countries so as to enhance market access while ensuring food quality and safety along high-value food supply chains.
Supplementary materials
Teaching Notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.
Subject code
CSS 7 Management Science
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Stephan M. Wagner, Viviane Heldt, Katrin Lentschig and Jennifer Meyer
The case of Bertelsmann China: Supply Chain for Books (B) is situated in China in the beginning of 2006. Bertelsmann Direct Group, the Chinese subsidiary of the worldwide…
Abstract
The case of Bertelsmann China: Supply Chain for Books (B) is situated in China in the beginning of 2006. Bertelsmann Direct Group, the Chinese subsidiary of the worldwide Bertelsmann AG, is one of the leading book retailers in the country. Supply chain management is essential for success in retailing, which is why Bertelsmann puts a lot of effort into the optimization of its supply chain design. As costs are paramount to importance in the low-margin book retailing sector, linear programming methods are applied to optimize the network
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