Financial Case Analysis

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Please use
one of the two styles of analysis listed below.

The first
type is more technical, as “Using MSFT to demonstrate the optimal capital
structure trade-off theory” shows. In such reports, detail number crunching and
analysis are used in various parts of the report. To accommodate with this
approach, you need have a good understanding and solid grip of the technical tools
of the financial analysis.

The second
type is more descriptive, as “How Kimberly-Clark Uses Real Options”
illustrates. Having collected the data and ratios from the company’s website or
other sources, you can literately or descriptively analyze what the issues on
hand. The general formats are almost same as those of the more technical ones.

As I
understand, some of you are more financially technical, whereas others are less
so. I have no preference to either approach, though some number crunching
should be in your report.

Case 57
Fonderia di Torino S.P. A.

For this
case, you have two choices to write your report: Either replicate the model
Using MSFT to demonstrate the optimal capital structure trade-off theory (more
quantitative analysis), or follow How Kimberly-Clark Uses Real Options
(somewhat quantitative analysis, but more concentrated on the qualitative
analysis).

You should
try to answer the following questions:

1. 
Please
assess the economic benefits of acquiring the Vulcan Mold-Maker machine. What
is the initial outlay? What are the benefits over time? What is an appropriate
discount rate? Does the net present value (NPV) warrant the investment in the
machine?

2. 
What
uncertainties or qualitative considerations might influence your
recommendation? How, if at all, would an inflation rate of 3% (or higher)
affect the attractiveness of the Vulcan Mold-Maker? Please estimate the impact
on NPV from a change in any of those elements.

3. 
Should
Francesca Cerini proceed with the project?

To
completely answer the above questions, you should also consider the following
questions (you need not to directly answer these questions). If you can answer
the following questions, answers to the above required can be easily
identified.

1.  What is the basic nature of the problem in
this case?

2.  What are the cash flows associated with the
Vulcan Mold-Maker?

3.  What are the cash flows associated with the
semiautomated machines?

4.  What discount rate did you use? What DCF did
you get?

5.  Are you
uncertain about any of the assumptions? What does a sensitivity analysis of
those assumptions reveal?

6.  Are there qualitative issues that we should
address but which are not reflected in the DCF analysis?

7.  What should Francesca Cerini recommend to her
board of directors?

Case 58
Negotiations Between Chrysler Corporation and Diamler (attached)

For this
case, you have two choices to write your report: Either replicate the model
Using MSFT to demonstrate the optimal capital structure trade-off theory (more
quantitative analysis), or follow How Kimberly-Clark Uses Real Options
(somewhat quantitative analysis, but more concentrated on the qualitative
analysis).

You should
try to answer the following questions:

1.  What is the situation faced by this company?
What are the strengths and weaknesses of this company, and those of its
counterparty? Why should your company and the counterparty company want to
negotiate?

2.  What are the likely high and low values of
Chrysler? What are those of Daimler-Benz? How did you estimate those values?
What are the key value drivers?

3.  What are the risks to Chrysler and to Daimler
in this transaction?

4.  Prepare a specific recommendation for the structure of a proposed
combination of Daimler and Chrysler, addressing all of the negotiable items
listed in the concluding section of the case. What steps should the decision maker
take? What should be said to whom?

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