Suggested Format for Case Analyses: 1. Executive Summary: brief 1 paragraph stating key problem(s) and your main recommendation(s)/decision(s). 2. Problem Identification: 1-2 page write-up of the key problem(s) you have identified within the case. This should not be a re-hash of the case itself. The Case Study questions should help you address the issues in this section. 3. Action Plan: 1-2 page write-up of your proposed solution to the problem(s) with detailed steps as to how to proceed with implementing your proposal. 4. Financial Analysis: 1-2 page write-up of the financial analysis that supports the recommendation(s) you have presented in the Executive Summary and Action Plan. Use an electronic spreadsheet to do the calculations and print out these figures as an attachment to your case analysis. Case Study Questions: Tiffany & Co.—1993: 1. Should Tiffany actively manage its yen-dollar exchange rate risk? Why or why not? 2. If Tiffany were to manage its exchange rate risk activity, then what should be the objectives of such a program (e.g., what specific purpose or theoretical rationale can justify a decision to hedge the yen-dollar risk)? 3. Assuming Tiffany wanted to hedge this risk, try to identify what exposures should be managed via such a hedging program (e.g., hedge sales, net income, cash flow, etc.). Also, try to quantify how much of these exposures should be covered and for how long. 4. Identify, in terms of cost, benefits, and risk, the relative advantage / disadvantage of the following three hedging strategies: a) do nothing, b) hedge with forward or futures contracts, and c) hedge with option contracts. Aspen Technology, Inc.: Currency Hedging Review (Mid-term Case and Group Presentation): 1. What are Aspen Technology’s main exchange rate exposures? How does the firm’s business strategy give rise to these exposures as well as to the firm’s financing need? 2. What should be the goal of the firm’s currency risk management program (and why)? You can frame your answer to this question using the theoretical rationales for risk management discussed in class and found in Ch. 20 of the Smithson text. 3. What hedging instrument(s), if any, would you recommend the firm use in order to achieve your recommended risk management goal? Arundel Partners: 1. First, read the HBS Tutorials and then read the Arundel case to answer these and the following questions: Why do the principals of Arundel Partners think they can make money buying movie sequel rights? Why do the partners want to buy a portfolio of rights in advance rather than negotiating film-by-film to buy them? 2. Estimate the per-film value of a portfolio of sequel rights such as Arundel proposes to buy. [There are several ways to approach this problem, all of which require some part of the data set in Exhibits 6-9. You may find it helpful to consult the Appendix, which explains how these figures were prepared.] You can use either DCF, real options, or both valuation techniques to answer this question. 3. What are the primary advantages and disadvantages of the approach you took to valuing the rights? What further assistance or data would you require to refine your estimate of the rights’ value? Phelps Dodge Corporation (Final Case Analysis): 1. Are the proponents of diversification for Phelps Dodge justified in their desire to moderate the impact of copper price volatility on the company’s performance? Is the reduction of commodity price risk a proper objective for management to pursue? 2. Is corporate diversification a good way for the firm to manage its risks associated with copper price movements? What other steps could be taken to reduce these risks? What are their advantages and disadvantages of these alternative ways of managing copper price risk? 3. As an equity investor in 1984, would you be willing to pay more, less, or just the same for Phelps Dodge’s stock if it announced a diversification program (assuming it paid fair value for the non-copper assets it acquired)? You can frame your answer to this question using the theoretical rationales for risk management discussed in class and found in Ch. 20 of the Smithson text. 4. What would you recommend Phelps Dodge do?
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