Search results

This case can be used to help students achieve the following objectives: To project financial statements and assemble different pieces of financial information to create a valuation model (objective #1, create), To calculate a value for Arcor shares, supporting the estimated value with the chosen assumptions and methodologies (objective #2, evaluate), To draw connections between four different approaches to valuation (DCF, EVA, RV and VI), contrasting them and weighting their advantages and limitations (objective #3, analyze), To examine the relationship between forecasted financial statements and valuation (objective #3, analyze), To discuss the calculation of the Weighted Average Cost of Capital in a new situation as is an emerging economy, with the corresponding country-risk adjustment (objective #4, apply), To discuss the sources of value creation in a family-owned private company in a developing economy (objective #4, apply), To understand the dilemma that the head of a company was facing, identifying the three possible financing alternatives discussed in the text as follows: corporate bonds, earnings reinvestment and an IPO (objective #5, understand). To recall basic facts, as the main character’s opinion on the direction of the local economy or the fact that Arcor already complies with the information requirements of a public company (objective #7, remember).

This case is based on the valuation of the world’s largest candy maker, Arcor S.A.I.C., originally a Latin American company, which remains a private family business. The key problem presented by the case is the use of different valuation approaches to price Arcor shares, in view of a possible Initial Public Offer. The case illustrates the application of four main valuation approaches as follows: Discounted Cash Flow (DCF), Economic Value Added (EVA), Relative Valuation (RV) and Value Investing (VI). Additionally, it includes a fundamental analysis of eight years of historical financial information and the preparation of forecasted financial statements. Set in a developing economy, the Arcor case introduces the complexities of calculating the cost of capital with the inclusion of country risk, as well as the financial analysis distortions caused by an environment of high inflation.

The Arcor case is appropriate to be used in graduate courses of Corporate Finance, Valuation or Private Equity.

Teaching notes are available for educators only.

CSS 1: Accounting and Finance.

This case is an abridged version of UVA-F-1115. This version is intended for use with audiences requiring less source documentation than is available in the unabridged version. The teaching note, however, contains all the source documentation in an appendix.

Alice Monroe was an admissions officer at the Kellogg School of Management at Northwestern University. It was early January 2017 and Alice had enrolled in Northwestern's 403(b) retirement plan two months earlier. After spending a considerable amount of time examining the mutual funds available through the university's retirement plan, Alice had picked two to invest in: a large-cap equity growth fund and a mid-cap equity fund. (See the related case "Selecting Mutual Funds for Retirement Accounts (A).") Her initial allocations were 50% of her investment dollars in each fund.

Upon further reflection, however, she realized these initial allocations were somewhat simplistic. She recalled, from an investments class she had taken at college, the topic of modern portfolio theory, which held that by adding more funds to her portfolio she might be able to achieve greater diversification and thereby reduce the overall risk of her portfolio and/or achieve a higher expected return. Alice now was considering adding an intermediate-term bond fund and a real estate fund to her retirement account.

She hoped to use modern portfolio theory to prove that these new funds would indeed help her diversify her portfolio. If they did, she would also reassess her portfolio weights to determine the optimal allocation.

Once a decision has turned out poorly—such as Merck's decision to launch and support the painkiller Vioxx—it is easy to criticize. However, are these bad outcomes the result of a good decision which turned out unlucky, or are they decisions where the bad outcome could have been predicted? This case follows Merck's pharmaceutical product Vioxx from initial development to launch and subsequent withdrawal, and considers the decisions made at each stage by the Merck executives involved. The case concludes by examining the financial impact of the Vioxx withdrawal on the company and on the Merck stock value.

This case allows the students to examine the various steps of Vioxx's development and launch. By doing so, they can consider whether the decision-making process broke down and why. By connecting the Vioxx launch and withdrawal to changes in Merck's cash flow and stock market value, the students can document the impact of such decisions on the value of the firm.

The Nokia case provides an opportunity to explore financing alternatives in a situation of broad strategic change. The case emphasizes the difficulties of managing the financial resources of technology-based companies when they fall behind in product innovation. Nokia, the world's leading producer of mobile phones, had recently seen its market share and profits eroded by rival products such as Apple's iPhone and phones featuring Google's Android operating system. In February 2011, Nokia CEO Stephen Elop announced a strategic plan and partnership with Microsoft to have Windows serve as its primary OS for smartphones. Since that announcement, Nokia reported a net loss in earnings, followed by a downgrade of its credit rating in the summer of 2012.

Analysts regard the next two years as a period of great uncertainty for the company. In January 2012, the CFO of Nokia estimates that the firm might require up to EUR4.3 billion in funding over the next two years to implement the plan under a representative downside scenario. Students are asked to evaluate the tradeoffs of raising the funds by issuing long-term debt, issuing equity, cutting dividends, or reducing cash. Given the firm's recent competitive struggles, none of the options is particularly appealing, which forces careful consideration of tradeoffs.

The Nokia is appropriate for use in upper-level undergraduate and graduate courses covering topics in capital raising, capital structure, corporate finance, and the costs of financing. A spreadsheet file of case exhibits to facilitate student preparation, teaching note, and instructional spreadsheet file are available for the case.

Via this case, students are introduced to several alternative methods of valuation, including the valuation based on the “real options” theory. The novelty of the case is the link between valuation and the type of innovation that the company represents. The suggested valuation frameworks, which include both quantitative and qualitative assessments, are applicable not only in the context of an IPO valuation but also in the context of any kind of M&A activity.

This case was prepared mostly via secondary research. All the information about Uber and the industry was collected via publicly available sources. No internal documents of the company were used in the preparation of this case. The primary research consisted of an interview with the protagonist Catherine (whose name is disguised). Other disguised elements in the case include the name of the Value Investor conference organizer (Spyros Spyrou, not his real name), the country of the Value Investor conference (omitted) and the conference venue (Princess hotel, not any actual venue).

In 2019, Uber, the famous ride-sharing company, made waves in financial markets as the most controversial IPO valuation. With a wide range of proposed values, Uber puzzled investors, once again living up to its fame of a rebel and a disruptor. When Uber finally went public in May 2019, its IPO valuation stood at $82.4bn. The heated discussion in the media continued even after the IPO: “Is Uber worth this amount? Is there an upside potential for the investors who bought shares at the IPO price? What if this is a hype and markets are simply embracing higher valuations?”

This case can be used at the undergraduate, graduate (MBA) or executive level in finance-related courses such as Company Valuation or Valuing Innovation, which cover the topic of valuation and specifically the topic of valuing innovative companies.

In early 2006, the anticipated expansion of package delivery services in China provided a great opportunity for the two package delivery giants FedEx and UPS. It was unclear which of these firms would make the most of this opportunity. An analysis of financial performance suggests that UPS is the better performer. On the other hand, the FedEx stock price performance has been far stronger. This apparent conflict highlights the fact that stock prices reflect anticipated future performance and new information. A teaching note and instructor and student spreadsheets are available.

This case was researched using publicly available sources, including Mercury Systems financial filings and press releases, news stories about the seasoned equity offering, financial information from Bloomberg and industry information from IBISWorld Industry Reports and articles related to seasoned/secondary equity offerings, intangible asset valuation and the use of revolving lines of credit. Quotes are taken from Mercury financial reports and press releases and express the (optimistic) opinions of company executives.

Mercury Systems, a technology company in the aerospace and defense industry, announced a six million share seasoned stock offering in June 2019. This resulted in a 6% stock price decrease. A stock price decrease is a typical event when a firm announces the issuance of new common shares, but with Mercury Systems, there were concerns about how much money the firm needed to fund its strategy of growth through acquisitions. If internally generated funds were not sufficient, should the firm issue debt or have another seasoned equity issue? Students will look at the objectives and success of the most recent seasoned equity issue, determine future funds needs and how the firm should finance these needs.

This case is appropriate for undergraduate and graduate students in corporate finance electives. Typically, topics such as seasoned equity offerings are not covered in introductory courses, so this is recommended for finance electives. Even in advanced finance courses, sometimes there is insufficient time to cover seasoned equity offerings.

The case presents a financing dilemma at a fast growing, Brazilian construction company. The growing demand for residential and commercial real estate in Brazil, coupled with the capital intensive nature of the industry generates the need for a considerable external financing. The students are invited to take the perspective of the financial manager and evaluate three financing alternatives – an issue of debentures, a seasoned equity offering, and a capital-raising ADR offering. In their evaluation and final recommendation students need to consider the implications of each of the financing alternatives on firm value, equity risk, cost of capital, financial leverage, issuance costs, and ownership structure. The case also presents a valuable opportunity to discuss the interdependence between the institutional development of an economy and the development of its capital markets.

The investment-strategy decisions of a Darden Capital Management student-portfolio management team in 2004 are examined. Case materials allow students to estimate CAPM-based expected returns using market data. The case focuses on introducing the portfolio-allocation decision; exploring the relevance of various investment-risk metrics; developing the intuition of diversification, market risk, and the capital-asset-pricing model; building judgment on how to appropriately estimate the CAPM parameters using available market data; and discussing the fundamental concepts of market efficiency.