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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. 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 Cephalon? 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? 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? Carrefour S.A. (Final Case Analysis): 1. Should Carrefour be pursuing an expansionary strategy financed by debt at this time? That is, is the firm’s strategy likely to enhance shareholder value and, if so, then is it acceptable for the firm to use debt to finance this expansion? 2. Assume for the rest of the questions that Carrefour wants to issue the bond described in the case. In this situation, what currency should the firm issue its 10- year, 750 million euro, annual coupon bond? Briefly explain/justify your choice. 3. What foreign currency risk exposure, if any, does your recommendation in #1 create (if any)? Please be specific about the most likely amount at risk during each year of the bond’s life. 4. Should the firm hedge any or all of the risk identified in #2 above? Briefly explain why or why not. 5. What hedging instruments, if any, should be used to hedge any possible bond- related currency risk? 6. Based on the Smithson chapters, what market imperfections (if any) can be reduced based on your response to #4 above? Briefly explain. 7. Briefly describe what operational risks and/or other non-financial risks the firm faces if they decide to continue to increase their non-French revenues?
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