Reference no: EM132291437

Case Study 1

An Overview of Financial Management and The Financial Environment

Assume that you recently graduated and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm's clients is Michelle Dellatorre, a professional tennis player who has just come to the United States from Chile. Dellatorre is a highly ranked tennis player who would like to start a company to produce and market apparel that she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. Dellatorre is also very bright, and, therefore, she would like to understand, in general terms, what will happen to her money. Your boss has developed the following set of questions which you must ask and answer to explain the U.S. financial system to Dellatorre.

a. Why is corporate finance important to all managers?

b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form.

c. How do corporations "go public" and continue to grow? What are agency problems? What is corporate governance?

d. What should be the primary objective of managers?
1. Do firms have any responsibilities to society at large?
2. Is stock price maximization good or bad for society?
3. Should firms behave ethically?

e. What three aspects of cash flows affect the value of any investment?

f. What are free cash flows?

g. What is the weighted average cost of capital?

h. How do free cash flows and the weighted average cost of capital interact to determine a firm's value?

i. Who are the providers (savers) and users (borrowers) of capital? How is capital transferred between savers and borrowers?

j. What do we call the price that a borrower must pay for debt capital? What is the price of equity capital? What are the four most fundamental factors that affect the cost of money, or the general level of interest rates, in the economy?

k. What are some economic conditions that affect the cost of money?

l. What are financial securities? Describe some financial instruments.

m. What are financial securities? Describe some financial instruments.

n. What are some different types of markets?

o. How are secondary markets organized?
1. List some physical location markets and some computer/telephone networks

p. Briefly explain mortgage securitization and how it contributed to the global economic crisis.

case Study 2 - Financial Statements, Cash Flow, and Taxes

Jenny Cochran, a recent graduate of the University of Tennessee with four years of banking experience, was recently brought in as assistant to the chairman of the board of Computron Industries, a manufacturer of computer components.

a. What effect did the expansion have on sales and net income? What effect did the expansion have on the asset side of the balance sheet? What effect did it have on liabilities and equity?

b. What do you conclude from the statement of cash flows?

c. What is free cash flow? Why is it important? What are the five uses of FCF?

d. What is Computron's net operating profit after taxes (NOPAT)? What are operating current assets? What are operating current liabilities? How much net operating working capital and total net operating capital does Computron have?

Case Study 3 - Analysis of Financial Statements

The first part of the case, presented in Chapter 3, discussed the situation of Computron Industries after an expansion program. A large loss occurred in 2013, rather than the expected profit. As a result, its managers, directors, and investors are concerned about the firm's survival.

a. Why are ratios useful? What three groups use ratio analysis and for what reasons?

b. Calculate the 2014 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company's liquidity position in 2012, 2013, and as projected for 2014? We often think of ratios as being useful (1) to managers to help run the business, (2) to bankers for credit analysis, and (3) to stockholders for stock valuation. Would these different types of analysts have an equal interest in the liquidity ratios?

c. Calculate the 2014 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover. How does Computron's utilization of assets stack up against other firms in its industry?

d. Calculate the 2014 debt ratio, liabilities-to-assets ratio, times-interest-earned, and EBITDA coverage ratios. How does Computron compare with the industry with respect to financial leverage? What can you conclude from these ratios?

e. Calculate the 2014 profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios?

f. Calculate the 2014 price/earnings ratio, price/cash flow ratios, and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company?

g. Perform a common size analysis and percent change analysis. What do these analyses tell you about Computron?

h. Use the extended Du Pont equation to provide a summary and overview of Computron's financial condition as projected for 2014. What are the firm's major strengths and weaknesses?

i. What are some potential problems and limitations of financial ratio analysis?

j. What are some qualitative factors analysts should consider when evaluating a company's likely future financial performance?

Case Study 4 - The Basics of Capital Budgeting: Evaluating Cash Flows

You have just graduated from the MBA program of a large university, and one of your favorite courses was "Today's Entrepreneurs." In fact, you enjoyed it so much you have decided you want to "be your own boss." While you were in the master's program, your grandfather died and left you $1 million to do with as you please. You are not an inventor and you do not have a trade skill that you can market; however, you have decided that you would like to purchase at least one established franchise in the fast-foods area, maybe two (if profitable). The problem is that you have never been one to stay with any project for too long, so you figure that your time frame is three years. After three years you will sell off your investment and go on to something else.

a. What is capital budgeting?

b. What is the difference between independent and mutually exclusive projects?

c. 1. Define the term net present value (NPV). What is each franchise's NPV?
2. What is the rationale behind the NPV method? According to NPV, which franchise or franchises should be accepted if they are independent? Mutually exclusive?
3. Would the NPVs change if the cost of capital changed?

d. 1. Define the term internal rate of return (IRR). What is each franchise's IRR?
2. How is the IRR on a project related to the YTM on a bond?
3. What is the logic behind the IRR method? According to IRR, which franchises should be accepted if they are independent? Mutually exclusive?
4. Would the franchises' IRRs change if the cost of capital changed?

e. 1. Draw NPV profiles for Franchises L and S. At what discount rate do the profiles cross?
2. Look at your NPV profile graph without referring to the actual NPVs and IRRs. Which franchise or franchises should be accepted if they are independent? Mutually exclusive? Explain. Are your answers correct at any cost of capital less than 23.6%?

f. What is the underlying cause of ranking conflicts between NPV and IRR?

g. What does the profitability index (PI) measure? What are the PI's for Franchises S and L?

h. 1. What is the payback period? Find the paybacks for Franchises L and S.
2. What is the rationale for the payback method? According to the payback criterion, which franchise or franchises should be accepted if the firm's maximum acceptable payback is 2 years, and if Franchises L and S are independent? If they are mutually exclusive?

3. What is the difference between the regular and discounted payback periods?
4. What is the main disadvantage of discounted payback? Is the payback method of any real usefulness in capital budgeting decisions?

i. You are also considering another project which has a physical life of 3 years; that is, the machinery will be totally worn out after 3 years. However, if the project were terminated prior to the end of 3 years, the machinery would have a positive salvage value. Here are the project's estimated cash flows:

                                                                                      Initial Investment And Operating               End-of-Year Net Salvage

Year                         Cash Flows                        Value

0                                ($5,000)                          $5,000

1                                   2,100                             3,100

2                                   2,000                             2,000

3                                   1,750                                    0

Using the 10% cost of capital, what is the project's NPV if it is operated for the full 3 years? Would the NPV change if the company planned to terminate the project at the end of Year 2? At the end of Year 1? What is the project's optimal (economic) life?

Case study 5 - Source of Finance- Teaching case studies Venturing for growth - A 3i Group case study

Case study 6- Money markets and more A Bloomberg case study

Case study 7- Interpreting and understanding accounts - Teaching case study

Case study 8 - Financial Analysis NIKE

Case study 9 - Using Actual Financial Accounting Information To Conduct Financial Ratio Analysis: The Case Of Motorola
Henry W. Collier, Timothy Grai, Steve Haslitt, and Carl B. McGowan, Jr.,

Attachment:- Case studies.rar