Suggested Format for Case Analyses:
1. Executive Summary: brief 1 paragraph stating key problem(s) and your main
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:
Merton Electronics Corporation:
For hedging calculation purposes in this case, you can assume a 4/22 spot exchange rate
of 135 Yen/U.S. dollar and a 4/22 futures rate of $0.7465 per 100 Yen.
1. How does the firm define and measure its foreign exchange exposure?
2. Identify, in terms of cost, benefits, and risk, the relative advantage of the
following three hedging strategies: a) do nothing, b) hedge with forward
contracts, c) hedge with a money market account.
3. Identify, in terms of cost, benefits, and risk, the relative advantage of the
following hedging strategies: d) hedge with futures contracts and e) hedge with
option contracts. In your response, be sure to also compare the two alternatives
with the three hedging strategies that you examined in Part I.
4. How should the firm handle its exposure to the Taiwan dollar? If you wish, you
can respond to this question in general terms since the case does not provide much
quantitative details on the firm’s Taiwan exposure.
5. Which of the above five hedging strategies would you recommend best suits this
6. Under what conditions should the firm try to speculate (or “take a view”) in the
Cephalon, Inc. (Mid-term Case and Group Presentation):
1. How much business and financial risk does Cephalon face? How do these risks
relate to each other? What factors might mitigate some of these risks?
2. Using the Black-Scholes option pricing model, is SBC’s option priced fairly for
3. How should Cephalon finance its projected cash needs in order to maximize
shareholder value? That is, what set of securities (and in what dollar amounts)
should the firm issue to maximize the firm’s value?
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?
Liability Management at General Motors:
1. How will changes in interest rates affect GM’s business? Try to quantify this
effect as best you can. Speculate on the various ways in which changes in interest
rates influence the demand for autos, the prices the firm can charge, its input
costs, etc. Apart from using derivative securities like those discussed in the case,
how else could a firm like GM control its exposure to interest rates?
2. What should be GM’s over-arching policy toward managing interest rate
exposure? For example, should GM seek to neutralize the effect of interest rate
changes on operating cash flow? market value of equity? or to abandon all such
efforts? Be prepared to discuss and interpret GM’s stated policies.
3. How has GM measured its exposure? How would you propose that GM measure
its interest rate exposure?
4. What role does a “rate view” play in the liability management policy at GM?
What role should it play in GM’s liability management program and why?
Privatization of Rhone-Poulenc:
1. Analyze Alternatives 1 and 2 (as well as Bankers Trust’s modified version of #2)
by presenting their payoff profiles in graphical form. For calculation purposes,
assume that an investor buys 1 share with her own money and borrows enough
money to purchase an additional 9 shares (for a total of 10 shares). Also, you can:
a) ignore administrative costs, dividends, and taxes, b) assume the deal is
consummated immediately and the first payment under the 33-month financing
scheme begins at the end of the month four (i.e., end of Jan. 1994), c) the public
offering price is 150 French Francs per share, and d) assume that all alternatives
are held for the same time horizon of 4.5 years.
2. How does the BT proposal work? For example, how can the BT proposal be
described in terms of the six building blocks of derivative securities?
3. Does the BT plan address the needs of the employees and senior management?
4. What should Messrs. Tirouflet and Prot do?
MW Petroleum (B) (Final Exam Case):
1. What possible alternatives might exist to solve the stalled negotiations? Do not
necessarily limit yourself to the ones mentioned in the case – be creative!
2. How can you express the proposed solution in terms of the financial contracts and
pay-off profiles studied in this course? Why do you think the deal is structured as
given in Exhibit 7? What other ways might it have been structured? What might
have been the pro’s and con’s of other structures?
3. Should Amoco accept the proposed deal from Apache, including the price-sharing
and price-support arrangements?