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This case serves as a foundation for student discussion of the estimation of required rates of return (ROR) on investments in emerging markets. An associate in J.P. Morgan's Latin America M&A department (mergers and acquisitions) is assigned the task of valuing the telephone directory operations (“paginas amarelas” means “yellow pages”) of a large Brazilian conglomerate. All cash flows have been converted to U.S. dollars, and present values computed for various discount rates. The remaining step is to determine the appropriate target rate of returns for dollar flows originating in Argentina, Brazil, and Chile. The capital asset pricing model (CAPM) is used along with a political risk premium and country beta. The necessary figure work is comparatively light, leaving the student time to reflect on the need for various adjustments in estimating crossborder rates of return.

After completing this case, students should be able to: identify and compute relevant cash flows in relation to a real estate project and compute the net present value (NPV). Determine the target return or cost of capital (by looking at historical economic indicators). Design or formulate a sensitivity analysis to determine the drivers of the project value. Evaluate real estate and other investments taking qualitative and quantitative factors into consideration. Demonstrate the computation of a break-even rate to determine the minimum or maximum revenue or cost required for a project to be viable.

This case study is about the Golden Beak Securities Pension Fund that wanted to invest in a Hostel Project in one of the universities in Ghana. Most universities in Ghana faced an acute shortage of on-campus accommodation. Also, the Government of Ghana, in 2017, implemented a programme to make Senior High School in Ghana free. This was expected to increase the number of students who will enter the existing universities. The project was therefore seen as strategic, as it would help ease the pressure of on-campus accommodation while providing diversification for the pension fund. As part of the investment committee’s (IC) quest to improve the skill set available to it, especially in relation to real estate investments, Esi Abebrese was appointed as one of the members of the IC of GSB. Her main task was to collect information on key macroeconomic variables, as well as granular information on project costs and revenues and conduct investment appraisal. Esi was scheduled to make a presentation to the IC on the 15th of October 2019 following which the Committee will debate and make a decision. The project had an estimated cost of GH¢52m with a total number of 3,424 student beds and ancillary facilities. Undertaking the project required moving funds from investments in money market securities with one of the banks in Ghana. The investments in the money market securities were currently yielding about 16% a year. The determination of the cost of capital was critical and Esi and Nana eventually settled on a long-term weighted average cost of capital of 14%. This was after considering the trend of inflation, monetary policy rates, treasury rates, stock market returns and a report on returns on commercial real estate properties in Ghana. An exit capitalisation rate of 20% was also estimated for the purposes of determining the value of the property at the end of the investment horizon. Esi also obtained estimates of cost and revenue for the project and proceeded to carry out a feasibility analysis on the project. This consisted of an NPV analysis and sensitivity analysis on various factors to determine the drivers of the project value. The IC had to take several factors (both quantitative and qualitative) into consideration before making a decision. Esi believed that these factors included the diversification of the fund’s assets, the return on investment, potential oversupply of hostel accommodation, the social responsibility of providing student accommodation and the impact of any prolonged shutdown of the university.

Masters/advanced undergraduate.

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CSS 1: Accounting and Finance.

In the summer of 2013, Whitney DeSoto had just been hired as managing director for real assets at the Overton Pension Fund (OPF). Her task was to provide recommendations to the board of trustees to introduce real estate into the fund's portfolio, which to date had been invested solely in stocks and bonds. Combining her knowledge of modern portfolio theory with her institutional expertise in real estate, DeSoto needed to decide what fraction of the fund should optimally be invested in real assets. She then faced the task of deciding whether to invest in public or private real estate. If she thought private real estate belonged in the portfolio, she would need to identify the best investment strategy, the best vehicle, and ultimately the specific investments to recommend.

• Apply modern portfolio theory to the investment decision of an institutional investor allocating its assets between stocks, bonds, and real estate

• Understand the limits of portfolio theory in a real estate context

• Analyze the benefits/costs of investments in both public and private real estate

• Understand the various vehicles in which one can invest in private real estate

• Argue for a set of investments that offer individual benefits/costs relative to a theoretically ideal investment

Apply modern portfolio theory to the investment decision of an institutional investor allocating its assets between stocks, bonds, and real estate

Understand the limits of portfolio theory in a real estate context

Analyze the benefits/costs of investments in both public and private real estate

Understand the various vehicles in which one can invest in private real estate

Argue for a set of investments that offer individual benefits/costs relative to a theoretically ideal investment

This case study is developed from secondary sources. Two types of data were used to develop this case. The statistical data are gathered from sources such as Yahoo! Finance, Trading Economics, Investing.com and The Central Bank of the Republic of Turkey. Reports on market developments are gathered from major news outlets such as Bloomberg, The Wall Street Journal and Reuters.

The year 2021 was a volatile year for the Turkish economy: it ended the year with 36% annual inflation, 44% currency devaluation, shortages of basic goods, street protests, etc. How does the Turkish currency crisis in 2021 play out in various financial markets such as the foreign exchange, bond, stock and cryptocurrency markets? This case study introduces students to Turkey’s economic crisis in 2021 and how the Turkish lira’s depreciation, home inflation and central bank policies interact to affect its various financial markets. In the bond market, a depreciated lira heightened the credit risk of Turkey’s bond issuers and effectively crippled the country’s bond market. In contrast, Turkey’s stock and cryptocurrency markets experienced a rally as Turks put their money into equities and cryptocurrencies to hedge against inflation. In international trade, the lira’s fall and the supply chain disruptions in Asia benefited Turkish exporters tremendously. In contrast, Turkish importers suffered. In the Turkish society, the impact of the currency and inflation crisis fell the hardest on ordinary folks, who saw the values of their wages and pension benefits erode. In times of hardship, socially responsible citizens helped the poor by anonymously paying for others’ unpaid bills.

Given the multicomplexity of a currency crisis, this case would be valuable for finance/economics students to understand how a country’s currency crisis and its central bank policies interact to impact its various financial markets. This case is appropriate for courses in Markets and Institutions with a global or cultural learning objective.

1. Describe how the Turkish lira’s depreciation affected its various financial markets, such as foreign exchange, bond, stock and cryptocurrency markets.2. Understand the cultural perspective on usury, how it exists in modern-day finance, and its’ role in President Recep Tayyip Erdoğan’s economic policy.3. Compare and contrast Turkey’s export and import industries and how they are being affected by the lira’s depreciation.4. Evaluate the risk exposure of foreign investors who participate in Turkey’s stock market given a depreciating lira.5. Evaluate the creditworthiness of Turkish corporations who issued dollar- or euro-denominated bonds as well as issuers of lira-denominated bonds given a depreciating lira.6. Understand the social impacts of a currency crisis and the charitable acts of socially responsible citizens.

In February 2015, Suzlon had just completed its financial and asset restructuring, following financial default after rapid growth through debt financed acquisitions in the financial boom ending in 2008. The restructuring resulted in a significant decrease in the promoter's equity stake. Suzlon now has to decide how to respond to an offer by the DilipSanghvi Group, promoters of Sun Pharma, to acquire a large equity stake in Suzlon for Rs. 1,800 crore. If Suzlon were to accept the offer then both the existing promoters and the DilipSanghvigroup would have the same stake of about 22% each. The case will help students examine the need to align financing and business strategy on the same plane. It will also help them understand details about restructuring of financial and business strategy in the face of financial distress.

Financial Management.

Masters, Bachelors.

In 2011, Real Sound Lab (RSL), an innovative audio technology company headquartered in Latvia, issued a bond to finance its needs. The face value of the issue was much smaller than what was typically encountered in the local market. The case describes how Viesturs Sosars, Chief Executive Officer of RSL, made this financing decision and how the difficulties at maturity were overcome.

Learn about financing options available for an small- or medium-sized enterprise in the case of inability to issue additional equity combined with an already high debt ratio. Learn about important considerations that should be made when deciding on the details of the bond issue and how these might impact the possible actions of the issuing company in case of being unable to repay the principal at maturity.

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The learning outcomes of this paper is as follows: to review the basic differences between the two evolving bonds, i.e. green vs masala bonds in the Indian capital market; to comprehend the factors that need to be considered in deciding the type of bond to be issued; to assess complexities, such as process, timing, risk and location in relation to the issue of the green bonds; and to understanding the rudiments of bond economics, such as pricing, all-in-cost and yield-to-maturity of bonds and make a comparison of all-in-cost of the Reg-S bond and green bond to Indian Railway Finance Corporation (IRFC).

In September 2017, IRFC, a public sector undertaking registered as a Non-Banking Finance Company with Reserve Bank of India under the administrative control of the Ministry of Railways, was planning to raise US$500m 10-year green bonds from investors in Asia, Europe and the Middle East. The green bond proceeds were proposed to be used for low carbon transport and in this way, contribute significantly to the green initiatives of the Indian Railways. Many companies in India had issued regular bonds without labeling them as green but had used the proceeds of the bond for climate-aligned assets. Therefore, a bigger challenge before the IRFC management was the economics of green bond for getting a nod from the Board of Governors to go ahead. Some preliminary estimates on cost of green bonds were received from few bankers but to see that the terms of green bonds are met eventually, the Director (Finance) developed his own estimate of the cost of the new bonds. The Managing Director and Director (Finance) of IRFC were trying to figure out the economic advantage of green bonds besides its social benefits.

MBA Programme Executive Training.

Teaching notes are available for educators only.

CSS 1: Accounting and Finance.

A hedge-fund strategist had two decisions to make. First, what was the path of core euro zone long-term interest rates likely to be over the next year? Was the dramatic decline in German long rates over the past few years an aberration that would soon be reversed, or was it part of the “new normal” that would persist for some time? Second, how would periphery long rates evolve relative to core rates? That is—the spread between long rates in the likes of Greece, Spain, and Ireland and those in Germany—how would they evolve over the next year? Was the dramatic divergence in euro zone long rates likely to persist, or would the coming year see a continuation of the modest reconvergence that has occurred since mid–2012? He knew many factors influenced long-term interest rates; he would have to use his entire toolkit to address this issue. The evidence was in no way clear-cut. Some factors pointed toward lower German rates, some toward higher, some toward a widening of euro zone spreads (even a dissolution of the euro zone as we know it?), and some toward reconvergence.

In February 1994, the senior management team at Continental Cablevision received the final joint-venture agreement from Fintelco, a potential partner in Argentina. The tasks for the student are to review the terms of the agreement, the outlook for the Argentine economy, and the corporate cultures at both companies to decide whether Continental should sign the agreement.