MBA591 Instructorguide

INSTRUCTOR GUIDE
CORPORATE FINANCE
Course Number: MBA591
Jones International University, Ltd.
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/or"orate =inan3e
.:*5,1
Jones International University, Ltd.
04/08 tlr

Jones International University, Ltd.: MBA591 Corporate Finance 2
&ones Inerna"ona$ Un"9ers"y
MBA 591: Cor:orae F"nan;e
Insru;or Gu"<e
>ear Instr'3tor,
0!e 3o'rse t!at yo' are a2o't to tea3! is 6o3'sed on 3or"orate 6inan3e %it! a s"e3i6i3 e4"!asis
at t!e +rad'ate level. I !o"e t!at yo' 6ind t!is 3o'rse as en&oya2le to tea3! as it !as 2een to
develo" t!e 4aterial.
I t!in1 t!at yo'?ll 6ind t!is to 2e a 2'sy 3o'rse 6or t!e +rad'ate st'dent. In !indsi+!t, I?ve "ro2a2ly
in3l'ded 4ore 4aterial, as o""osed to less %it! a s"e3i6i3 e;"e3tation t!at t!e st'dents %ill 2e
6'lly en+a+ed 6or t!e entire ei+!t 4od'les.
In str'3t'rin+ t!e 3o'rse, I tried to 2'ild '"on t!e @6'nda4entalsA o6 4aterial t!at t!e st'dents 4ay
!ave learned in t!eir "revio's 3o'rses at JIU# t!e e3ono4i3s, a33o'ntin+, and 3ore 6inan3e
3o'rse, as %ell as t!eir li1ely 'nder+rad'ate e;"erien3e at ot!er instit'tions. I "rovided a 3'rsory
revie% o6 so4e o6 t!ese 3on3e"ts early in t!e 6irst5!al6 o6 t!e 3o'rse to ens're t!at t!e st'dents
are 3o46orta2le %it! 3on3e"ts and ideas. *s t!e na4e i4"lies, !o%ever, t!is 3o'rse ta1es t!e
6'nda4entals a ste" 6'rt!er %it! a s"e3i6i3 3on3entration '"on 3or"orate 6inan3e. I !ave tried to
"rovide relevant te3!ni<'es and 4et!ods %!ere %arranted t!ro'+!o't t!e ei+!t 4od'lesB +iven
t!at t!is a +rad'ate 3o'rse, t!e 6o3's %as '"on tea3!in+ via 3ase st'dies, as o""osed to &'st
"ro2le4 solvin+, alt!o'+!, ad4ittedly t!ere are 4any "ro2le4s to %or15o't and solve as %ell.
Cavin+ ta'+!t online 6or so4e ti4e no%, I a4 also sensitive to ens'rin+ t!at t!is instr'3tor +'ide
in3l'des t!e 3o4"lete sol'tions to "ro2le4s, as %ell as relevant <'estions t!at yo', t!e instr'3tor,
3an 'se at t!e end o6 ea3! t!e4e d'rin+ t!e 3o'rse o6 ea3! 4od'le. O6 3o'rse, t!e te;t is
al%ays availa2le as a +ood re6eren3e, and t!e :realey, .eyers, *llen te;t2oo1 is a +ood
re6eren3e, "ro2a2ly t!e 2est re6eren3e o6 3or"orate 6inan3e 4aterial at t!e +rad'ate level.
:est %is!es 6or a +reat 3o'rseD
>r. .i1e 0!irtle

Course Overview
0!e 6o3's o6 .:* 5,1# /or"orate =inan3e is 4a1in+ e66e3tive 6inan3ial de3isions in a "rivate5 or
"'2li35se3tor or+aniEation. Fe 'se t!e ter4 73or"orate7 to denote or+aniEational de3isions and
76inan3e7 to denote t!at %e are 3on3erned %it! !o% to 4a;i4iEe t!e 'se o6 t!e or+aniEationGs
reso'r3es# 6inan3ial, !'4an, and 3a"ital. In t!e "'2li3 se3tor, t!e 3or"orate 6inan3e 6'n3tion
ty"i3ally resides in t!e 6inan3ial 4ana+e4ent de"art4ent. In t!e "rivate se3tor, t!e 6'n3tion
ty"i3ally resides 'nder t!e /!ie6 =inan3ial O66i3erGs (/=O oversi+!t. 0!is res"onsi2ility in3l'des#
Strate+iEin+ a3<'isitions and 4er+ers
>eter4inin+ a""ro"riate 2orro%in+ str'3t'res
/ond'3tin+ 3ost52ene6it analyses
Hro%in+ t!e 2'siness 6inan3ially
See1in+ o't and i4"le4entin+ a""ro"riate invest4ents
.ana+in+ 3as! 6lo%s
0!e 2otto4 line is 3reatin+ val'e 6or t!e 6ir4 or or+aniEation. .:* 5,1 2'ilds on 6inan3ial
3on3e"ts learned in t!e 3ore 6inan3e 3o'rse and %ill e;a4ine 3ase st'dies and 2'siness
s3enarios 'sin+ an 7a""lied7 a""roa3!. 0!e overall +oal o6 t!is 3o'rse is to "rovide +rad'ate5level
st'dents %it! a 4ore in5de"t! 'nderstandin+ o6 3or"orate 6inan3e t!at %ill s'33ess6'lly "re"are
t!e4 6or roles as 6inan3ial analysts in a 3or"orate or "'2li35se3tor or+aniEation. 0!e e;"e3tation
is t!at st'dents %ill s"end an avera+e o6 15 I 18 !o'rs "er %ee1 %or1in+ t!ro'+! t!e 3o'rse
4aterial.
Pedagogical Approach
/or"orate 6inan3e 6'nda4entals %ill 2e ta'+!t t!ro'+! a variety o6 4et!ods, in3l'din+#
Online and o66line readin+s and e;a4"les
/o4"'tational "ro2le4s
/ase st'dies
Jeer5revie% a3tivities
*nalysis o6 6inan3ial state4ents
S"reads!eet assi+n4ents
>is3'ssion =or'4
:e3a'se st'dents 4ay !ave a li4ited 2a31+ro'nd in 6inan3e and a33o'ntin+ (t!ey %ill !ave ta1en
one o6 ea3! d'rin+ t!e 3ore 3'rri3'l'4, t!e initial "art o6 t!e 3o'rse %ill revie% 3on3e"ts 3overed
in t!e 3ore .:* =inan3e, *33o'ntin+, and E3ono4i3s 3o'rses.
/ase st'dies %ill 2e t!e "ri4ary ve!i3le 6or testin+ st'dentsG 'nderstandin+ o6 and "ro6i3ien3y in
3or"orate 6inan3e 3on3e"ts. St'dents %ill 2e as1ed to ta1e on t!e role o6 a 6inan3ial analyst in a
3or"oration to a33o4"lis! vario's tas1s in 3ase st'dy s3enarios. 0!is 4et!od o6 a""lied learnin+
is intended to "rovide an en+a+in+ and en&oya2le, as %ell as 3!allen+in+, learnin+ e;"erien3e.

Learning Outcomes
0!is 3o'rse %ill 3over an array o6 to"i3s t!at a /=O and !is$!er sta66 %o'ld 2e 3on3erned %it! on
a day5to5day 2asis. 0!e +oal o6 t!is 3o'rse is 6or st'dents to 6o3's on ana$ys"s, syn=es"s, and
e9a$ua"on. *t t!e end o6 t!is 3o'rse, t!e st'dent s!o'ld 2e a2le to a33o4"lis! t!e 6ollo%in+
ter4inal 3o'rse o2&e3tives#
*nalyEe t!e role o6 t!e 6inan3ial 4ana+er and val'e 3reation in a 6ir4 and !o% a 6o3's on
et!i3s and et!i3al de3ision54a1in+ is i4"ortant to 6ir4 s'33ess.
E;"lain !o% a 2alan3e s!eet, in3o4e state4ent, and state4ent o6 3as! 6lo%s are 'sed in
3or"orate 6inan3ial analysis and "oint o't !o% a 3o4"any 'ses t!ese tools 6or 4a1in+ so'nd
3or"orate 6inan3ial de3isions.
Ke3o+niEe t!e 3on3e"t o6 t!e ti4e val'e o6 4oney and 4odel its 'se %it!in t!e 3or"orate
environ4ent.
/o4"are and 3ontrast t!e 'se o6 ti4e val'e o6 4oney te3!ni<'es in3l'din+ NJL and IKK.
*nalyEe 6inan3ial "ro2le4s %it! t!e 'se o6 dis3o'nted 3as!56lo% analysis and ill'strate !o%
>/= 3an 2e 'sed to 4a1e invest4ent de3isions.
>evise an analyti3al a""roa3! o6 val'in+ 2onds and sto31s 6or t!e "'r"ose o6 deter4inin+ an
a""ro"riate iss'e "ri3e.
/o4"are and 3ontrast t!e 3on3e"ts o6 ris1, ret'rn and t!e o""ort'nity 3ost o6 3a"ital and !o%
t!ese 3on3e"ts are a""lied in a real5%orld 3onte;t.
Jro"ose an a""roa3! 6or !o% "ro6ita2le de3isions 3an 2e 4ade 2y 'sin+ 3ost o6 3a"ital
3onsideration %it!in t!e 3or"orate environ4ent.
Readings
Keadin+s 6or t!e 3o'rse 3o4e 6ro4 a te;t2oo1 and an online readin+ "a31et.
0!e te;t2oo1 is#
:realey, K. *., .yers, S. /., M *llen, =. ()008. Principles of corporate finance (,
t!
Ed.. :oston#
.3Hra% Cill$Ir%in.
Course Structure
0!is 3o'rse 3onsists o6 t!e ei+!t 4od'les o'tlined 2elo%.
Mo<u$e 1: Ro$e o# =e F"nan;"a$ Mana>er an< F"rm (a$ue
0!is 6irst 4od'le 2e+ins 2y dis3'ssin+ t!e roles o6 6inan3ial 4ana+ers and t!e +oals o6 t!e
3or"oration. *6ter a 2rie6 revie% o6 t!e ty"es o6 2'sinesses, t!e 4od'le dis3'sses t!e i4"ortan3e
o6 et!i3s in t!e 6inan3ial 4ana+e4ent de3ision54a1in+ "ro3ess and %!y it is i4"ortant 6or
2'siness "ro6essionals to 2e %ell5versed in a""lyin+ et!i3al standards to 6inan3e. =inally, t!e
4od'le introd'3es t!e 'se o6 t!e 3ase st'dy in t!e 3onte;t o6 t!e st'dy o6 6inan3e.

Mo<u$e ?: T=e Use o# A;;oun"n> an< F"nan;e "n =e Cor:orae ,or$<
0!is 4od'le %ill 2e+in %it! a revie% and dis3'ssion o6 t!e 4a&or 6inan3ial state4ents t!at a
6inan3ial 4ana+er %or1s %it!# t!e 2alan3e s!eet, t!e in3o4e state4ent, and t!e state4ent o6
3as! 6lo%s. 0!e 4od'le %ill e;a4ine t!e di66eren3e 2et%een 2oo1 and 4ar1et val'es and
des3ri2e !o% +enerally a33e"ted a33o'ntin+ "rin3i"les (H**J %or1 %it!in t!e 3onstr'3t o6 val'e.
0!e 4od'le %ill also e;"lain !o% a 2alan3e s!eet "rovides a sna"s!ot o6 a 6ir4Gs assets and
lia2ilitiesB !o% t!e in3o4e state4ent 4eas'res "ro6ita2ilityB and !o% t!e 3as! 6lo% state4ent
4eas'res t!e so'r3e and 'ses o6 3as! d'rin+ t!e 2'siness year.
Mo<u$e @: T=e T"me (a$ue o# Money an< Cor:orae F"nan;e
0!is 4od'le %ill e;"lore several to"i3s related to t!e ti4e val'e o6 4oney. =irst, %eGll s!o% !o%
ti4elines 3an 2e 'sed to assist 6inan3ial analysis. 0!en, %eGll tal1 a little a2o't %!at is 4eant 2y
t!e 6't're val'e o6 4oney and !o% to 3ond'3t "resent val'e analysis5 %eGll de6ine t!e 3on3e"t,
3ite so4e e;a4"les, and t!en %or1 t!ro'+! so4e "ra3ti3e e;a4"les.
Ne;t, %eGll dis3'ss "er"et'ities and ann'ities, and "ra3ti3e %it! so4e e;a4"les o6 !o% to
3al3'late t!e "resent val'es asso3iated %it! ea3!.
=inally, %eGll tal1 a2o't t!e role o6 in6lation in 6inan3ial analysis. 0!is last dis3'ssion %ill 6o3's on
t!e di66eren3e 2et%een real and no4inal interest rates and !o% 'sin+ di66erent ty"es o6 rates 3an
a66e3t t!e 6inan3ial analysis t!at is 2ein+ "er6or4ed.
Mo<u$e A: Use o# In9esmen Cr"er"a "n Cor:orae F"nan;e
0!is 4od'le 3ontin'es t!e val'ation t!e4e 2y 6o3'sin+ on s"e3i6i3 te3!ni<'es in t!e 3onte;t o6
3or"orate 6inan3e de3ision54a1in+ N si4ilar "ro2le4s t!at t!e st'dents %o'ld 6a3e as 6inan3ial
4ana+ers %it!in a 6ir4. /on3e"ts "resented in t!is 4od'le %ill dra% '"on e;"erien3e t!at t!e
st'dents !ave learned in t!eir ot!er .:* 3o'rses (e3ono4i3s, 6inan3e, and a33o'ntin+.
In t!is 4od'le, st'dents %ill de4onstrate t!eir 6a3ility %it! Net Jresent Lal'e (NJL and Internal
Kate o6 Ket'rn (IKK te3!ni<'es and !o% t!ese 3an 2e 'sed in 3or"orate 6inan3e to o"ti4iEe
s!are!older %ealt!. St'dents %ill also 2e as1ed to 3ontrast t!e 'se o6 t!ese 4et!ods in t!e
3onte;t o6 3or"orate iss'es and deter4ine %!i3! "ro&e3ts s!o'ld 2e 3!osen +iven a set o6
"otential o""ort'nities.
Mo<u$e 5: Use o# D"s;oune< Cas=BF$oC Ana$ys"s "n Cor:orae F"nan;e
0!is 4od'le 2'ilds on t!e "revio's 6o'r 4od'les 2y 6o3'sin+ on 2'ildin+ in3re4ental 3as! 6lo%s
o6 a "ro&e3t and deter4inin+ %!et!er or not a 6ir4 s!o'ld a33e"t it as a via2le invest4ent. *6ter
6o3'sin+ on de3isions %it! in3re4ental 6lo%s, t!e st'dent %ill t!en 2e as1ed to 3ond'3t
@sensitivityA analysis on a +iven "ro&e3t. Sensitivity or @%!at5i6A analysis %ill 2e 'sed to
de4onstrate !o% 3!an+es in individ'al "ro&e3t 3!ara3teristi3s 3o'ld 3!an+e t!e overar3!in+
"ro&e3t de3ision.
Mo<u$e D: (a$ua"on o# Bon<s an< So;Es
0!is 4od'le e;tends t!e 3as! 6lo% and ti4in+ 3on3e"ts to t!e 6or4al val'ation o6 2onds and
e<'ity (sto31 invest4ents. *s a 6inan3ial 4an+er, it is i4"ortant 6or t!e st'dent to 'nderstand
!o% 3o4"any 2onds$sto31 %ill 2e val'ed 2y t!e 4ar1et.
0!e val'ation o6 2onds and sto31s involve t!e sa4e "rin3i"les t!at !ave already 2een e;"lored
%it!in t!e 3o'rse# "resent val'e, 6't're val'e, dis3o'nted 3as! 6lo%s, ti4in+, and ris1. S"e3i6i3

e4"!asis %ill 2e a""lied to 'nderstandin+ t!e 3!ara3teristi3s o6 sto31s and 2onds, !o% 4ar1et
"ri3es are 3al3'lated, and t!e in6l'en3e o6 ris1 and 3as! 6lo%s '"on "ri3e.
Mo<u$e F: R"sE/ Reurn/ an< =e O::orun"y Cos o# Ca:"a$
0!is 4od'le 2rid+es to+et!er t!e 3on3e"ts o6 asset invest4ent and 6inan3in+ (.od'le 8. .od'le
- 3overs t!e 3on3e"t o6 t!e 7o""ort'nity 3ost o6 3a"ital,7 ris1 (identi6ied as standard deviation,
and ret'rns 5 as dis3'ssed 2y "ort6olio 3on3e"ts.
It is i4"ortant 6or st'dents to 'nderstand %!y diversi6i3ation de3reases total ris1 5 a 3on3e"t t!at
is relevant in 2ot! invest4ent 6inan3in+ and 3or"orate 6inan3e. St'dents %ill 2e introd'3ed to t!e
de6inition o6 2eta as a 4eas're o6 4ar1et ris1 and !o% 2eta relates to t!e e;"e3ted rate o6 ret'rn
t!at s!are!olders %ill de4and. 0!e 4od'le %ill 3on3l'de 2y !avin+ st'dents 3al3'late a 6ir4Gs
o""ort'nity 3ost o6 3a"ital 2ased '"on t!e in6or4ation "resented in t!e earlier "arts o6 t!e
se3tion.
Mo<u$e G: ,e">=e< A9era>e Cos o# Ca:"a$
0!is 4od'le is t!e 3a"stone 4od'le o6 t!e 3o'rse and de4onstrates to t!e st'dents !o% one 3an
3al3'late a %ei+!ted avera+e 3ost o6 3a"ital (F*// 2ased on 4odern "ort6olio t!eory. F!ile t!e
o""ort'nity 3ost o6 3a"ital 3on3e"t %as introd'3ed in .od'le -, t!is 4od'le %ill ta1e t!e t!eory a
ste" 6'rt!er and des3ri2e t!e detailed "ro3esses involved in esti4ate 3ost o6 3a"ital. 0!e
i4"ortant tie 2et%een t!is 4od'le and t!e "revio's "arts o6 t!e 3o'rse is t!e relations!i"
2et%een o""ort'nity 3ost o6 3a"ital and !o% it is 'sed in NJL and IKK eval'ation o6 invest4ent
o""ort'nities.
Assignments Overview
.:* 5,1 3ontains 6o'r ty"es o6 assi+n4ents# readin+s, "ra3ti3e e;er3ises, =or'4 dis3'ssions,
and 3ase st'dies.
Rea<"n>s 3onsist o6 online readin+s in t!e 6or4 o6 4od'le t!e4es and arti3les in t!e online
readin+ "a31et, as %ell as o66line readin+s in t!e re<'ired te;t2oo1s.
Pra;";e eHer;"ses are availa2le to t!e st'dents in ea3! 4od'le and s!o'ld 2e 'sed 2y st'dents
to test t!eir 'nderstandin+ o6 t!e 3on3e"ts in t!e 4od'le. 0!ese e;er3ises %ill not 2e +raded.
Forum <"s;uss"ons re<'ire st'dents to 3ond'3t (and yo' to 6a3ilitate dis3'ssions in t!e 3o'rse
=or'4. 0!ese assi+n4ents are desi+ned to en+a+e st'dents in an online asyn3!rono's
dis3'ssion o6 o"en5ended <'estions related to t!e 3ontent o6 a +iven 4od'le. St'dent ans%ers to
<'estions as %ell as t!eir res"onses to t!e "ostin+s o6 ot!er st'dents are +raded. =or'4
dis3'ssions 3o4"rise over ))O o6 t!e 6inal +rade. .ost 4od'les 3ontain a =or'4 dis3'ssion.
Cere is a list o6 =or'4 assi+n4ents t!at %ill re<'ire a 6older in t!e =or'4#
*ssi+n4ent 1.1# Jersonal and Jro6essional Introd'3tions
*ssi+n4ent 1.)# =or'4 >is3'ssion
*ssi+n4ent ).1# =or'4 >is3'ssion
*ssi+n4ent 3.1# =or'4 >is3'ssion
*ssi+n4ent P.1# =or'4 >is3'ssion

*ssi+n4ent -.1# =or'4 >is3'ssion
CaseBsu<y ass">nmens 3onsist o6 Carvard :'siness S3!ool 3ase st'dies t!at st'dents %ill
read and t!en ans%er <'estions on. /ase st'dy assi+n4ents re<'ire st'dents to a""ly 3on3e"ts
dis3'ssed in ea3! 4od'le in a 3reative and 3!allen+in+ 4anner. Individ'al <'estions on t!e 3ase
st'dies 4ay re<'ire 4at!e4ati3al$s"reads!eet analysis, %!ile ot!ers 4ay re<'ire a %ritten
res"onse (e;"lanations, "ers'asive 4e4os, et3.. In ans%erin+ t!ese <'estions, t!e "ro3ess is
as i4"ortant as t!e "rod'3t. St'dents are en3o'ra+ed to s!o% all t!eir %or1 and e;"lain t!eir
t!in1in+, in addition to 3o4in+ '" %it! an ans%er. Jartial 3redit is a%arded 6or t!ese "ro2le4s.
0!ese assi+n4ents 3o4"rise over --O o6 t!e 6inal +rade. 0!ere are 6 3ase st'dy assi+n4ents.
0!e re4ainder o6 t!e +'ide %ill 6o3's on "rovidin+ 4odel$sa4"le sol'tions 6or t!e +raded
assi+n4ents.

.O>ULE 1
Ass">nmens
Assignment 1.1: Forum Discussion
0!ere are no s"e3i6i3 3orre3t ans%ers. St'dent res"onses %ill vary, 2't s!o'ld 2e eval'ated on
t!eir 3larity, insi+!t, reasona2leness, and s'2stantiation %it! relevant 6a3ts and e;a4"les. 0en
"oints o6 t!e )5 "oint total s!o'ld 2e devoted to "arti3i"ation in t!e dis3'ssion, so t!is is an
i4"ortant as"e3t o6 t!e assi+n4ent.
,=a "s =e so;"a$Ien9"ronmena$ res:ons"b"$"y o# a #"rm o =e >reaer so;"eyJ
Kes"onses are li1ely to vary 6ro4 st'dent to st'dent on t!is <'estion. 0!is is an o"en5ended
<'estion %!i3! relies on st'dent o"inion. 0!ere are 4any e;a4"les o6 ans%ers t!at st'dents
4ay "rovide to t!is# t!o'+!ts t!at s"an t!e s"e3tr'4 o6 a+ree4ent and disa+ree4ent. In t!eir
res"onses, t!e st'dents s!o'ld arti3'late %!at is 4eant 2y so3ial$environ4ental res"onsi2ility
and !o% a 2'siness 3an 3ontri2'te or 4ay 3!oose not to 3ontri2'te to t!is. E;a4"les o6
2'sinesses and t!eir a3tions or ina3tion is es"e3ially i4"ortant 6or de4onstratin+ t!is 3on3e"t.
So4e e;a4"le t!o'+!ts in3l'de t!e 6ollo%in+#
(*+ree4ent *n or+aniEation s!o'ld develo" stron+ ties %it! its lo3al 3o44'nity
2e3a'se t!e or+aniEation dra%s its !'4an 3a"ital 6ro4 t!e sa4e lo3ale.
(>isa+ree4ent Or+aniEations s!o'ld 2e dedi3ated to 4a1in+ "ro6it and i4"rovin+
t!eir 2'siness "osition as 4'3! as "ossi2leB so3ial res"onsi2ility is i4"ortant, in ter4s o6 any
le+al re<'ire4ents t!at t!e 6ir4 4'st 4eet, 2't it is not ne3essary 6or an or+aniEation to
3o44it reso'r3es.
(*+ree4ent :'sinesses t!at 6o3's on t!eir so3iety %ill do 2etter in t!e lon+5r'n
2e3a'se so3iety %ill a""re3iate t!eir a""roa3! and "atroniEe t!e4.
(>isa+ree4ent Unless t!e 3o4"any "er3eives t!at it %ill 4a1e a "ro6it 6ro4 a
so3ietal 6o3's, it s!o'ld not %aste reso'r3es on a3tivities t!at 4ay s'""ort so3ial
res"onsi2ilityB si4"ly stated, 3o4"anies are in t!e 2'siness o6 4a1in+ 4oney, not 4a1in+
so3ial "oli3y.
Does ="s res:ons"b"$"y e9er ouCe">= "s res:ons"b"$"y o s=are=o$<ersJ
=ro4 %!at %e !ave st'died in .od'le 1, t!e t!eoreti3al (and "ra+4ati3 6o3's o6 a 6ir4 is 4a1in+
4oney 6or its s!are!olders. Stri3tly s"ea1in+, 6ir4s are not in t!e 2'siness o6 so3ial "oli3y
6or4'lationB !o%ever, t!is is not to say t!at 4a1in+ 4oney and so3ial res"onsi2ility are 4't'ally
e;3l'sive. 0!ere are 4any e;a4"les o6 6ir4s t!at state t!at t!ey 3an do 2ot!. Co%ever, a
2'siness 3annot stay in 2'siness i6 it doesn?t 4a1e a "ro6itB t!'s, it see4s t!at t!ere is a
si+ni6i3ant tension 2et%een !oldin+ "ro6it 4a1in+ and so3ial res"onsi2ility in 3!e31. I6 a 6ir4 !as
no res"onsi2ility to so3iety, it %o'ld see4 t!at t!e 6ir4 4ay not stay @in 2'sinessA very lon+.
Jeo"le are not li1ely to "atroniEe 2'sinesses t!at are not li1ely to s'""ort so3ietal o2&e3tives, in
t!e lon+ r'n.

*s st'dents ans%er t!is <'estion, it is i4"ortant t!at t!ey distin+'is! 2et%een t!e t%o 3on3e"ts
and dis3'ss t!e tension 2et%een t!e t%o o2&e3tives. St'dents are li1ely to ans%er alon+ a
s"e3tr'4 o6 "otential sol'tionsB t!e 1ey !ere, in +radin+ t!eir %or1, is to assess t!eir ar+'4ents
2ased '"on so'nd lo+i3. Use o6 e;a4"les o6 3o4"anies or s3enarios is also desired.
Are =ese obKe;"9es muua$$y eH;$us"9eJ
.'t'ally e;3l'sive 4eans t!at one event$o't3o4e %ill o33'r se"arate 6ro4 t!e ot!er. It see4s
t!at t!ere are 4any 3ases in t!e *4eri3an e3ono4y %!ere t!ese t%o o't3o4es are not 4't'ally
e;3l'siveB 6or e;a4"le, i6 one st'dies t!e Fal5.art /or"oration, it is 3lear t!at t!e or+aniEation
6o3'ses on "rovidin+ s!are!olders %it! a "ositive ret'rn %!ile si4'ltaneo'sly servin+ t!e
3o44'nity %!ere a Fal5.art is lo3ated. Fal1 into any Fal5.art and yo'?ll ty"i3ally see so4e
6or4 o6 3o44'nity 6o3's e;"ressed as t!e a4o'nt o6 4oney t!at Fal5.art donates to t!e lo3al
3o44'nity. 0!ere are a 4yriad o6 ot!er e;a4"les t!at &'st don?t 6o3's on !ard 3as!B ot!er
3o4"anies 4ay !el" t!eir s'rro'ndin+ 3o44'nity %it! 2lood drives, 6ood drives, Ca2itat 6or
C'4anity, and t!e li1e. Or+aniEations t!at are 6o3'sed '"on 2ot! t!e s!are!older and t!e
3o44'nity tend to 4ar1et t!is 6o3's and e;"ress t!is dyna4i3 as a @"ositiveA attri2'te.
A<<""ona$ C"a"ons #or =e Insru;or
:oatri+!t, J. K. (1,,P. =id'3iary d'ties and t!e s!are!older 4ana+e4ent relation# Or, %!at?s so
s"e3ial a2o't s!are!oldersQ Business Ethics Quarterly, Lol'4e P.
Hood"aster, R. E. (1,,1. :'siness et!i3s and sta1e!older analysis. Business Ethics Quarterly,
Lol'4e 1.
Lindsey, K. (1,88. *n3ient red%ood trees 6all to a Fall Street ta1eover. The New York Times,
.ar3! ), ". *165-.
.il2an1, >. (1,,6. Cirin+ %el6are "eo"le, !otel 3!ain rinds, is to'+! 2't re%ardin+. Wall Street
Journal, O3to2er 31.
Fillia4son, O. E. (1,85. The economic institutions of capitalism. Ne% 9or1# 0!e =ree Jress.
,eb Resour;es
:'siness 6or So3ial Kes"onsi2ility (!tt"#$$%%%.2sr.or+$
Net I4"a3t# Ne% Leaders 6or :etter :'siness (!tt"#$$%%%.net5i4"a3t.or+$
:'siness in t!e /o44'nity (!tt"#$$%%%).2it3.or+.'1$inde;.!t4l
:rid+e%ay .'t'al ='nds (!tt"#$$%%%.2rid+e%ay6'nd.3o4, s"e3i6i3ally
(!tt"#$$%%%.2rid+e%ay6'nd.3o4$a2o't/!ar.as"
Assignment 1.: Case Stud!
The Analysts !ilemmaB :adara33o, Jose"! L., Jr.BUsee4, JerryB )ar9ar< Bus"ness S;=oo$
Pub$"s="n>B 10$08$1,,3B P "a+es. Case Re#eren;e Number: ,53,P5056
* yo'n+ invest4ent 2an1er ret'rns !o4e one ni+!t to 6ind t!at !er roo44ate and 2est 6riend !as
2een laid o66 6ro4 Universal :an1 2e3a'se Universal is s!'ttin+ do%n its 3a"ital 6inan3e +ro'".
Cer roo44ate 4a1es !er "ro4ise to 1ee" t!is in6or4ation 3on6idential 2e3a'se t!e ne%s is not
to 2e dis3losed to t!e 4ar1et 6or several days.

0!e "rota+onist 1no%s, !o%ever, t!at UniversalGs 3a"ital 6inan3e +ro'" is 3olla2oratin+ %it! !er
o%n invest4ent 2an1 on a levera+ed 2'yo't deal and t!at UniversalGs %it!dra%al 3o'ld !ave
"otentially disastro's ra4i6i3ations 6or t!e deal i6 !er o%n invest4ent 2an1 is not noti6ied
i44ediately. S!e 4'st de3ide %!et!er to 2rea1 !er "ro4ise to !er 6riend or to re4ain silent and
e;"ose !er o%n 3o4"any to +reat ris1.
*6ter readin+ t!is 3ase, address t!e 6ollo%in+ <'estions ('se 15) "ara+ra"!s "er <'estion to
res"ond. 0otal o6 100 "oints evenly distri2'ted a3ross t!e 6ollo%in+ 8 <'estions#
a% To C=a eHen ;an Ce se:arae our :r"9ae $"9es #rom our bus"ness res:ons"b"$""esJ
*s t!e 3ase !i+!li+!ts, distin+'is!in+ 2et%een one?s "ersonal li6e and %or1 3an 2e a
3!allen+in+ sit'ation. 0!e dile44a 6a3ed in t!is 3ase is !o% t!e individ'al 3an 4a1e sense o6
2ot! %orlds and not 3o4"ro4ise one 6or t!e ot!er. So4e re3o44endations 6or se"aration
3o'ld 4ean# not 4i;in+ @2'siness %it! "leas're,A or 1ee"in+ one?s %or1 at %or1. St'dents
s!o'ld ans%er t!is <'estion %it! an e;a4"le in t!eir o%n "ersonal$2'siness li6e t!at 4ay
!i+!li+!t a si4ilar s3enario.
b% )oC <oes one re;on;"$e :ersona$ $oya$y C"= ;om:any $oya$y C=en =e Co are "n
;on#$";J
0!is is tr'ly a &'d+4ent 3all on t!e "art o6 t!e st'dent. 0!e 3ase "rovides a sit'ation %it!
@tensionA t!at re<'ires t!e st'dent to de3ide. So4e 4ay 3!oose 3o4"any loyaltyB ot!ers 4ay
3!oose "ersonal loyalty. In +radin+ t!is <'estion, it?s i4"ortant to loo1 6or t!e lo+i3 and
str'3t're o6 t!e res"onse. >oes t!e st'dent address t!e tensionQ Co% does t!e st'dent
dis3'ss t!e <'estion o6 "rioritiEation 2et%een t!e t%oQ >oes !e$s!e 'se relevant e;3er"ts
6ro4 t!e 3ase or t!eir o%n e;"erien3e to dis3'ssQ
;% )oC Cou$< you ;=ara;er"Le =e e=";a$ <"$emma =a =e au=or #a;e<J
St'dents s!o'ld dis3'ss t!e dile44a o6 "rivate vs. 3o4"any li6e and t!eir 3o44it4ents to
6riends and 3o4"any.
<% )oC Cou$< you ;onras =e *$oya$y+ =a =e au=or #e$ oCar< =e"r em:$oyer re$a"9e
o =e *$oya$y+ =a may =a9e eH"se< C"="n =e Enron ;oneHJ Are =ere s"m"$ar""es
or <"##eren;es beCeen =e Co ;asesJ
0!e readin+ 6or t!is %ee1# @Enron?s Sylla2's o6 ErrorsA !i+!li+!ted t!e iss'es "revalent in t!e
Enron s3enario t!at trans"ired over t!e "ast 6e% years. In ans%erin+ t!is <'estion, loo1 6or
t!e st'dent to dis3'ss t!e @loyaltyA o6 t!e individ'al in t!e 3ase and 3ontrast !o% Enron
4ana+ers 4ay !ave "la3ed t!e loyalty o6 t!eir 3o4"any (and &o2 over ot!er et!i3al iss'es.
In t!e latter "art o6 t!is <'estion, t!e st'dent s!o'ld !i+!li+!t si4ilarities and di66eren3es t!at
are relevant to 2ot! 3ases.
e% Is " :oss"b$e =a =e >oa$ o# maH"m"L"n> s=are=o$<er Cea$= ;ou$< ;reae a :rob$em o#
;on#$";"n> e=";s or "ne>r"yJ P$ease <es;r"be =oC ="s may =a9e o;;urre< "n =e
;ase s;enar"oJ
St'dent ans%ers %ill vary. =o3's on t!is res"onse is related to t!e tension t!at e;ists
2et%een s!ort and lon+5ter4 6o3's o6 t!e 6ir4?s val'e, as %ell as t!e di66eren3e in +oals o6 t!e
3or"oration and !o% 3o4"any e;e3'tives s!o'ld 6o3's. =or e;a4"le, st'dents 4ay tal1
a2o't t!e vario's sta1e!olders, %!o does %!at and t!eir o2&e3tivesB and dis3'ssion o6 t!ese
sta1e!older vie%"oints 4ay 3on6li3t, es"e3ially in t!e 3or"orate 6inan3e area.
#% ,=a Cas =e =rea o =e =">=B9a$ue bon< "ssueJ )oC <"< ="s :$ay "n =e au=or6s
<e;"s"onJ

0!reat related to t!e val'ation o6 t!e 3o4"any# t!is %as an i4"ortant varia2le 2e3a'se o6 t!e
"otential 2'siness "ro6it or loss t!at 4ay o33'r. It %as o2vio's 6ro4 t!e 3ase t!at t!is
val'ation %as at t!e 3r'; o6 t!e et!i3al dile44a# "rovide insi+!t on t!e 3o4"any %!i3! 3o'ld
a66e3t t!e val'ation or !el" 6riends. St'dents s!o'ld address t!e dile44a and dis3'ss t!e
s"e3i6i3 attri2'tes o6 t!e 3ase in t!is li+!t.
>% D"< =e au=or =a9e oo many *#ee$"n>s+ #or :eo:$eM=oC <"< ="s a##e; ="s Ku<>men
"n =e ;aseJ I# you Cere ="m/ =oC Cou$< you =a9e rea;e< oCar< Se9en an< !or"J
,=a Cou$< you =a9e <oneJ
*ns%ers %ill vary, 2't st'dent res"onses s!o'ld 6o3's on t!e di66erentiation 2et%een "ersonal
vs. "ro6essional res"onsi2ilities. St'dent s!o'ld dis3'ss !o% !e$s!e %o'ld !ave rea3ted in
t!is 3ase, via a role5"layin+ dis3'ssion.
=% Re$a"9e o =e ar";$e on Enron =a you rea< #or T=eme A/ "# you =a< CorEe< #or Enron
"n =e #"nan;e <e:armen an< Cere aCare o# =e *o##s=ore+ a;;oun"n> :ro;e<ures/
=oC Cou$< you =a9e rea;e< o ="sJ )oC Cou$< you ansCer ="s "# your bonusIsa$ary
Cas <e:en<en u:on =ese a;;oun"n> sru;uresJ
St'dent res"onses %ill vary. >is3'ssion o6 t!eir "er3e"tion o6 et!i3s and e;e3'tion %it!in t!e
6inan3e$a33o'ntin+ area is 1ey !ere.

.O>ULE )
Ass">nmens
Assignment .1: Forum Discussion
I# you Cere =e CFO o# your or>an"La"on/ =oC Cou$< you ba$an;e =e re$a"ons=": o# ;as=
#$oC re$a"9e o :ro#" #or maE"n> soun< bus"ness <e;"s"onsJ
0!e /=O is in a 1ey "osition in t!e 3o4"any, 2alan3in+ 4any di66erent varia2les in t!e
or+aniEation. *s %e sa% in .od'le ), t!ese in3l'de# 2alan3e s!eets, 3as!56lo%, and ot!er
6inan3ial 4etri3s. 0!e 2otto4 line is t!at t!e /=O and !er sta66 are 6o3'sed on t!e 6inan3ial !ealt!
o6 t!e 3o4"any. In en!an3in+ t!e !ealt! o6 t!e 3o4"any, it is i4"ortant 6or t!e /=O to 2alan3e
3as! 6lo% and "ro6it. F!yQ :e3a'se it is !i+!ly "ossi2le 6or a 3o4"any to 6o3's on one or t!e
ot!erB t!is ty"e o6 a""roa3! 3o'ld res'lt in a sit'ation in %!i3! t!e 3o4"any 4ay 6ind itsel6 o't o6
2'siness in t!e lon+ r'n (not "ro6ita2le or %antin+ 6or 3as! to invest (not 4'3! 3as! 6lo%.
0!e @e;e4"larA /=O 3an 2alan3e t!ese t%o varia2les 2y ens'rin+ t!at 6inan3ial data is a33'rately
3a"t'red, a++re+ated, and analyEed to s!o% 6inan3ial 4etri3s and trends. In 2alan3in+ t!ese t%o
varia2les, it is i4"ortant 6or t!e /=O to intera3t %it! !er 3ollea+'es to ens're t!at everyone
'nderstands !o% t!e 3o4"any is a3!ievin+ its strate+i3 +oals.
=or e;a4"le, i6 t!e 3o4"any !as a +oal o6 +ro%in+ its reven'e 2y 5O "er year, t!is +ro%t! 4ay
re<'ire a 3ertain a4o'nt o6 invest4ent in ne% 3a"ital and in6rastr'3t're. 0o a3!ieve t!is +ro%t!,
it is li1ely t!at t!e 3o4"any %ill re<'ire a 3ertain a4o'nt o6 3as! 6lo% %!ile si4'ltaneo'sly
in3reasin+ "ro6its. On t!is latter "oint, i6 t!e 3o4"any %ere "'2li3ly traded, t!e "ro6it 3!ara3teristi3
%ill 2e "ositively 3orrelated %it! !o% t!e 4ar1et val'es t!e 3o4"anyGs sto31 "ri3e. Sto31 "ri3e,
in5t'rn, %o'ld !ave an i4"a3t '"on t!e val'ation o6 t!e 3o4"any %!i3! 4ay a66e3t de2t or e<'ity
o66erin+s to raise 3a"ital.
,eb Resour;es
Jlan%are (!tt"#$$%%%."lan%are.or+$3as!6lo%.!t4
/as! =lo% (!tt"#$$%%%.a33tsite.3o4$arti3les$3as!6lo%detailed.!t4
Assignment .: Case Stud!
"ana#a Packers $nc.B Heor+e *t!anassa1os and Rennet! Carlin+ SFil6rid La'rier University,
Faterloo, /anada N)l 3/5%B Nort! *4eri3an /ase Kesear3! *sso3iationB )0#3 (S"rin+ )000B )P
"a+es.
In early 1,,0, to" 4ana+e4ent o6 Cillsdo%n Coldin+s, JL/ (CC o6 London, En+land, %as
3onsiderin+ 4er+in+ its %!olly5o%ned s'2sidiary .a"le Lea6 .ills Li4ited (.L. o6 0oronto,
Ontario, %it! /anada Ja31ers In3. (/J, also o6 0oronto. .L. !ad sales o6 over T-00 4illion in
t!e year ended >e3e42er 1,8,, and /J !ad sales o6 &'st 'nder T3 2illion in t!e year ended
.ar3! 1,,0. 0!is 4eant t!at t!e 4er+er %o'ld 4a1e CC a 4a&or "layer in t!e Nort! *4eri3an
6ood ind'stry.
CCGs to" 4ana+e4ent !ad as1ed t!e senior e;e3'tives 6ro4 CC and .L., as %ell as CCGs le+al
advisors, to 3onsider and eval'ate t!e 4er+er. It !ad also retained t!e servi3es o6 an invest4ent

2an1er, K:/ >o4inion Se3'rities, In3., to o66er val'ation servi3es and a 6airness o"inion in
3onne3tion %it! t!e 4er+er. 0!e tea4Gs 4andate %as to deter4ine !o% 4'3! CC s!o'ld "ay 6or
/J and 6or4'late a ta1eover "lan t!at %o'ld "rod'3e a s'33ess6'l 4er+er on t!e 4ost 6avora2le
ter4s 6or CCGs s!are!olders.
*ns%er t!e 6ollo%in+ <'estions in yo'r %rite5'". 0otal o6 100 "oints, e<'ally divided a4on+ t!e
6ollo%in+ <'estions#
a% ,=a "s =e maKor ;=a$$en>eI=eme o# ="s ;aseJ S:e;"#";a$$y/ C=a bus"ness :rob$em
are you #a;e< C"=J
Cillsdo%n Coldin+s is 6a3ed %it! a "otential 4er+er %it! /anada Ja31ers. It 4'st deter4ine
%!et!er or not t!e 4er+er is a 6inan3ially "r'dent 4ove 6or its 3o4"any.
b% Ana$yLe an< <"s;uss =e re$e9an;y an< "m:oran;e o# =e #"nan;"a$ saemens
:resene< "n ="s ;ase su<yJ ,=a "n#orma"on "s mos "m:oranIre$e9an o
a<<ress"n> =e Nues"on :os"e< "n 1ues"on 1 abo9eJ
St'dent res"onses to t!is <'estion %ill vary, de"endin+ '"on !o% t!ey %ill 3ond'3t t!e
analysis 6or t!e "ro2le4. 0%o e;!i2its t!at see4 to "ro2a2ly 2e t!e 4ost i4"ortant 6or
analyEin+ t!e 4er+er a3tivity are E;!i2its P and 5. 0!ese E;!i2its s!o% /anada Ja31ers?
:alan3e S!eet and Jer6or4an3e 4eas'res 6or t!e re3ent "ast. :ot! e;!i2its address t!e 1ey
<'estion o6 !o% 6inan3ially via2le t!e 6ir4 is. *not!er 1ey /anada Ja31er data so'r3e is t!e
"re54er+er "ro&e3ted in3o4e state4ent and 2alan3e s!eet (E;!i2its , and 10, res"e3tively.
O6 3o'rse, one 4'st 2alan3e t!e validity o6 t!is in6or4ation a+ainst !istori3al 6i+'res, d'e to
t!e 6a3t t!at t!ese are 6ore3asts t!at s!o% e;"e3ted o't3o4es.
Ot!er +ra"!i3s and data in t!e 3ase st'dy are relevant and %ill aid Cillsdo%n in deter4inin+
%!et!er /anada %ill a'+4ent its ot!er !oldin+s (E;!i2it 6, and E;!i2it 1, %!i3! s!o%s t!e
relative earnin+$"ro6its o6 vario's "arts o6 t!e /anadian ind'stry. :ot! e;!i2its aid in
"rovidin+ 3onte;t 6or t!e 4er+er a3tivity and address t!e @!ealt!A o6 t!e 3'rrent e3ono4y in
t!is s"e3i6i3 ni3!e.
;% ))6s o: mana>emen =as :u o>e=er a eam ;ons"s"n> o# sen"or eHe;u"9es #rom
)) an< M!M/ as Ce$$ as ))6s $e>a$ a<9"sors% Assume =a you are on =e eam an< are
ser9"n> as a #"nan;"a$ ana$ys on ="s :roKe;% ,=a Cou$< be your re;ommen<a"on
C"= res:e; o =e mer>erI:ur;=ase o# CPJ
St'dent res"onses 3an vary si+ni6i3antly in res"onse to t!is <'estion. *ll res"onses s!o'ld
3onsider so4e state4ent o6 re3o44endation 6ollo%ed 2y 'se o6 <'antitative$n'4eri3al
in6or4ation to s'""ort t!e re3o44endation.
<% I# you =a< o maEe a re;ommen<a"on base< on =e "n#orma"on "n EH="b"s 1OA "n =e
;ase/ C=";= y:es o# "n<usr"es Cou$< you re;ommen< =a )) #o;us onJ ,=ere <oes
=e mos :ro#"ab$e #o;us a::ear o beJ Is ="s =e same as =e ;as= #$oC :resene< "n
=e <aaJ
E;a4inin+ t!ese e;!i2its, it is a""arent t!at 2ot! dairy and 2a1ery "rod'3ts !ave 3ontin'ed
to in3rease over t!e ti4e6ra4e st'died. St'dents s!o'ld in3l'de so4e 6or4 o6 state4ent o6
net "ro6it as a O o6 sales. In6or4ation s!o'ld also 2e des3ri2ed as 2ein+ relevant or non5
relevant in t!is 3ase.
So4e s"e3i6i3 !i+!li+!ts %!i3! t!e 6inan3ial s!eets 6or /J "oint o't#
/J %as /anada?s lar+est 6ood "ro3essor in t!e "revio's year (T30:

Net In3o4e !as 2een 6allin+ d'rin+ t!e "ast 5 years "rior to t!e ti4e t!at is 2ein+
3onsidered 6or "'r3!ase. It !as dro""ed t%o5t!irds 6ro4 1,86 to 1,,0.
Interest e;"enses !ave in3reased 2y t!ree6old d'rin+ t!e sa4e ti4e6ra4e (1,8651,,0.
0!is is "ro2a2ly related to 2orro%in+ o6 6'nds and 3an 2e validated 2y e;a4inin+ t!e
:alan3e s!eet on E;!i2it P and notin+ t!e @lon+5ter4A de2t entry 6or 1,,0. 0!is !as
in3reased rat!er si+ni6i3antly over t!e re3ent "ast.
It is 3lear t!at t!ere are divisions %it!in /J t!at are "ro6ita2le, and ot!ers not. 0!is is an
i4"ortant 3onsideration t!at CC s!o'ld 3onsider "rior to "'r3!ase, es"e3ially in t!e
sense o6 !o% CC %ill 4i+rate divisions in t!e 4er+er "ro3ess. 0!e 4eat division !as
s"e3i6i3ally done "oorly in a "ro6it sense.
CC is 3learly a 3o4"any on t!e rise# 2ot! sales reven'e and o"eratin+ "ro6it !ave 2een
on t!e '"s%in+. One area o6 interest is t!e relative s'33ess o6 CC?s 4eat division
3o4"ared to t!at in /JB t!e CC 4eat division is 4a1in+ a "ro6it.
* 1ey as"e3t o6 t!e 3ase is t!at t!e /J o%ners are loo1in+ 6or t!e entire or+aniEation to
2e "'r3!asedB t!is 3o'ld 3a'se 3as! 6lo% iss'es 6or CC.
e% I# you ;ou$< asE #or more "n#orma"on "n ="s ;ase o su::or your o9erar;="n> so$u"on
o 1ues"on 1/ C=a o=er "n#orma"on Cou$< you asE #orJ ,=y Cou$< you reNues
="sJ
St'dent s'++estions %ill vary.
#% Base< on C=a you =a9e rea< "n ="s ;ase/ <oes " a::ear :ru<en #or M!M an< )) o
a;Nu"re CPJ
J'sti6i3ations 6or de3ision s!o'ld in3l'de 6inan3ial$analyti3al &'sti6i3ation as "art o6 t!e
res"onse. 0!is <'estion is related to U'estion 3B sa4e s'""ort eviden3e 4ay 2e 3ited in
2ot! "arts.
>% Re$a"9e o =e ;ourse maer"a$ #or ="s CeeE/ =oC "m:oran "s GAAP o un<ersan<"n>
an< *rus"n>+ #"nan;"a$ saemens $"Ee =e one :resene< "n ="s ;aseJ
*s t!e 4od'le "oints o't, H**J "rovides str'3t're and +'idelines 6or a33o'ntin+ "ra3ti3es.
*s t!e U.S. e3ono4y !as seen 6ro4 )00)I)003, !o%ever, &'st 2e3a'se a 3o4"any indi3ates
t!at it 6ollo%s H**J, does not ne3essarily 4ean t!at it is 3ond'3tin+ its a33o'ntin+ in an
et!i3al 4anner. In t!is sense, H**J "rovides 3on6iden3e, 2't also !as li4itations %it!
res"e3t to !o% 6ar one 3an really @tr'stA 6inan3ial state4ents.
=% )oC <oes =e aHa"on on ;or:orae :ro#"s "m:a; =e ou;omes :resene< "n ="s
;aseJ In your assessmen/ "s aHa"on a s">n"#";an or a nonBs">n"#";an 9ar"ab$eJ
*ns%ers %ill vary. Co%ever, ta;ation is al%ays 3onsidered to 2e i4"ortant. In t!is 3ase, CC
%ill !ave to t!oro'+!ly analyEe t!e i4"a3t o6 t!is ty"e o6 lar+e 4er+erB es"e3ially, +iven t!e
6a3t t!at t!e or+aniEations st'died are @internationalA in nat're. 0!is "resents a relatively
3!allen+in+ ta; analysis to ens're t!at t!e lar+er 3or"oration (4er+ed 3or"oration %o'ld not
"la3e 'nd'e 2'rdens on t!e ne% 6ir4 relative to t!e s4aller entities t!at 3o4"rised it.

.O>ULE 3
Ass">nmens
Assignment ".1: Forum Discussion
T="s mo<u$e =as <"s;usse< =e e;onom";s o# "n#$a"on% In ;urren e;onom"; an< #"nan;"a$
neCs/ one o#en =ears abou P<e#$a"on%P ,=a "s <e#$a"on an< C=a "s =e :rob$em "n
=a9"n> a <e#$a"onary e;onomyJ
>e6lation o33'rs %!en "ri3es 6or +oods and servi3es in t!e e3ono4y !ave a @realA de3rease over
a s"e3i6ied "eriod o6 ti4e. 0!e "ro2le4 %it! a de6lationary e3ono4y is t!at as "ri3es 6or +oods
and servi3es de3rease, 2'sinesses are less li1ely to 3reate 4ore "ro6its or in3rease 3as! 6lo%,
%!i3! in t'rn a66e3ts 3a"ital invest4ent and t!e !irin+ o6 "otential %or1ers. *s de6lation 2e3o4es
4ore si+ni6i3ant, 4any e3ono4ists 2elieve t!at t!ere %ill 2e a 4ore ne+ative i4"a3t '"on t!e
e3ono4y, as 3ons'4ers %ill 3ontin'ally "ost"one "'r3!ases, sin3e t!e "rod'3ts t!ey %is! to
"'r3!ase %ill 2e 3!ea"er in t!e 6't're.
0!ere are e3ono4ists %!o 2elieve t!at de6lation is not ne3essarily a 2ad t!in+. O6 3o'rse, t!is
de"ends '"on t!e "ers"e3tive o6 t!e individ'al. =or e;a4"le, i6 one is +ain6'lly e4"loyed, !as a
3ertain in3o4e strea4 and is a2le to ta1e advanta+e o6 lo%er "ri3es, t!is is a +ood t!in+ 6or t!at
individ'al. F!en st'dents res"ond to t!is, t!ey 3an ta1e eit!er side o6 t!e ar+'4ent. 0!e
i4"ortant "art is t!at t!ey "rovide s'2stan3e to t!eir res"onse in de6endin+ t!eir "osition.
Base< on your un<ersan<"n> an< resear;=/ <o you be$"e9e =e Amer";an e;onomy "s "n a
<e#$a"onary s"ua"onJ ,=yJ
In ans%erin+ t!is <'estion, st'dents 3an 'tiliEe /ons'4er Jri3e In6lation data to de4onstrate !o%
"ri3es !ave 3!an+ed over ti4e. One reso'r3e 6or /JI data is lo3ated at t!e 6ollo%in+ Fe2 site#
!tt"#$$in6lationdata.3o4$In6lation$/ons'4erVJri3eVInde;$Cistori3al/JI.as";
-EAR &AN FEB MAR APR MA- &UN &U! AUG SEP OCT NO( DEC ANN
?88@ 181.- 183.1 18P.) 183.8 183.5
?88? 1--.1 1--.8 1-8.8 1-,.8 1-,.8 1-,., 180.1 180.- 181 181.3 181.3 180., 1-,.88
?881 1-5.1 1-5.8 1-6.) 1-6., 1--.- 1-8 1--.5 1--.5 1-8.3 1--.- 1--.P 1-6.- 1--.10
?888 168.8 16,.8 1-1.) 1-1.3 1-1.5 1-).P 1-).8 1-).8 1-3.- 1-P 1-P.1 1-P 1-).)0
1999 16P.3 16P.5 165 166.) 166.) 166.) 166.- 16-.1 16-., 168.) 168.3 168.3 166.60
199G 161.6 161., 16).) 16).5 16).8 163 163.) 163.P 163.6 16P 16P 163., 163.00
199F 15,.1 15,.6 160 160.) 160.1 160.3 160.5 160.8 161.) 161.6 161.5 161.3 160.50
199D 15P.P 15P., 155.- 156.3 156.6 156.- 15- 15-.3 15-.8 158.3 158.6 158.6 156.,0
1995 150.3 150., 151.P 151., 15).) 15).5 15).5 15)., 153.) 153.- 153.6 153.5 15).P0
199A 1P6.) 1P6.- 1P-.) 1P-.P 1P-.5 1P8 1P8.P 1P, 1P,.P 1P,.5 1P,.- 1P,.- 1P8.)0
199@ 1P).6 1P3.1 1P3.6 1PP 1PP.) 1PP.P 1PP.P 1PP.8 1P5.1 1P5.- 1P5.8 1P5.8 1PP.50
199? 138.1 138.6 13,.3 13,.5 13,.- 1P0.) 1P0.5 1P0., 1P1.3 1P1.8 1P) 1P1., 1P0.30
In6lation 3al3'lations are seen in t!e 6ollo%in+ 3!art#
!tt"#$$in6lationdata.3o4$In6lation$In6lationVKate$Cistori3alIn6lation.as";
-EAR &AN FEB MAR APR MA- &UN &U! AUG SEP OCT NO( DEC A(E

)003 ).60O ).,8O 3.0)O ).))O ).06O
)00) 1.1PO 1.1PO 1.P8O 1.6PO 1.18O 1.0-O 1.P6O 1.80O 1.51O ).03O ).)0O ).38O 1.5,O
)001 3.-3O 3.53O ).,)O 3.)-O 3.6)O 3.)5O ).-)O ).-)O ).65O ).13O 1.,0O 1.55O ).83O
)000 ).-PO 3.))O 3.-6O 3.0-O 3.1,O 3.-3O 3.66O 3.P1O 3.P5O 3.P5O 3.P5O 3.3,O 3.38O
1,,, 1.6-O 1.61O 1.-3O ).)8O ).0,O 1.,6O ).1PO ).)6O ).63O ).56O ).6)O ).68O ).1,O
1,,8 1.5-O 1.PPO 1.3-O 1.PPO 1.6,O 1.68O 1.68O 1.6)O 1.P,O 1.P,O 1.55O 1.61O 1.55O
1,,- 3.0PO 3.03O ).-6O ).50O ).)3O ).30O ).)3O ).)3O ).15O ).08O 1.83O 1.-0O ).3PO
1,,6 ).-3O ).65O ).8PO ).,0O ).8,O ).-5O ).,5O ).88O 3.00O ).,,O 3.)6O 3.3)O ).,3O
1,,5 ).80O ).86O ).85O 3.05O 3.1,O 3.0PO ).-6O ).6)O ).5PO ).81O ).61O ).5PO ).81O
1,,P ).5)O ).5)O ).51O ).36O ).),O ).P,O ).--O ).,0O ).,6O ).61O ).6-O ).6-O ).61O
1,,3 3.)6O 3.)5O 3.0,O 3.)3O 3.))O 3.00O ).-8O ).--O ).6,O ).-5O ).68O ).-5O ).,6O
1,,) ).60O ).8)O 3.1,O 3.18O 3.0)O 3.0,O 3.16O 3.15O ).,,O 3.)0O 3.05O ).,0O 3.03O
Is a ;era"n amoun o# "n#$a"on >oo< #or =e e;onomyJ
0!e 6ollo%in+ arti3le %as 6o'nd on /NN.oney.3o4 and addresses t!is <'estion and also "rovide
3onte;t 6or t!e "revio's t!ree <'estions#
=::IImoney%;nn%;omI?88@I85I??I;ommenaryIEan<e$I
CNN Money%Com
May ?@/ ?88@
By Myron .an<e$
I ="nE "5s a >oo< "<ea #or =e man o#en <es;r"be< as =e se;on<Bmos :oCer#u$ :erson "n
,as="n>on o a::ear be#ore Con>ress a #eC "mes a year an< e$$ =ose usua$$y e;onom";sB
;=a$$en>e< #o$Es =oC =e e;onomy "s <o"n>/ "# =ey ;an #">ure ou ="s o#enB;on9o$ue<
$an>ua>e%
*nd t!e =ed 3!air4an !as to ans%er a 2arra+e o6 <'estionin+ %it!o't ti""in+ !is !and a2o't %!at t!e
=ed is +oin+ to do a2o't interest rates.
So *lan Hreens"an 4ade one o6 !is o2li+atory a""earan3es yesterday 2e6ore t!e Joint E3ono4i3
/o44ittee and ti"5toed aro'nd t!e <'estions 55 4ostly so6t2alls 55 lo22ed 2y !is interro+ators.
In e66e3t, Hreens"an said t!e e3ono4y %as +oin+ to +et 2etter, 2't !e didnGt 1no% %!en.
7Loo1in+ a!ead,7 !e noted, 7t!e 3onsens's e;"e3tation 6or a "i31'" in e3ono4i3 a3tivity is not
'nreasona2le, t!o'+! t!e ti4in+ and e;tent o6 t!e i4"rove4ent 3ontin'es to 2e 'n3ertain.7
Hreens"an o2vio'sly 1no%s very %ell t!at t!e 3ardinal r'le o6 e3ono4i3 and 6inan3ial 6ore3astin+ is
never +ive an o't3o4e and a date in t!e sa4e "redi3tion.
:'t !e added t!at 4onetary "oli3y re4ains a33o44odative 55 4eanin+ lo% interest rates and an
a4"le s'""ly o6 4oney. *nd !e also said t!e re3ent rally in t!e 6inan3ial 4ar1ets a""ears to indi3ate
stron+er e3ono4i3 +ro%t! do%n t!e road.
Ce 3on3eded, t!o'+!, t!at t!e "ost5Ira< %ar &'4" in e3ono4i3 a3tivity !asnGt yet 4aterialiEed in t!e
la2or 4ar1et and 2'siness s"endin+. Co%ever, !e added, t!at %ea1ness re6le3ted de3isions t!at
4ostly %ere 4ade 2e6ore t!e start o6 t!e %ar.
* 4a&or 3on3ern, evident in !is "re"ared re4ar1s and !is res"onses to <'estions, is t!e t!reat o6
de6lation, and alt!o'+! Hreens"an doesnGt li1e to 'se t!e 7>7 %ord, !e said !e and !is =ed 3ollea+'es
7re3o+niEe t!at de6lation is a "ossi2ility,7 t!o'+! a 4inor one, and %o'ld 2e 4onitored 3losely.

0!is is !o% !e "'t it in Hreens"an5ese# 70!e "ro2a2ility o6 an 'n%el3o4e s'2stantial 6all in in6lation
over t!e ne;t 6e% <'arters, t!o'+! 4inor, e;3eeds t!at o6 a "i31'" in in6lation.7
So4e o6 's re4e42er %!en t!e =ed %as sayin+ t!at Eero in6lation %as its +oal. No% t!e 3ons'4er
"ri3e inde; !as +ro%n on an ann'aliEed 2asis 2y only si;5tent!s o6 one "er3ent over t!e last t!ree
4ont!s, and de6lation is t!e %orry.
>e56lation, not in56lation.
>e6lation is 2ad 6or t!e e3ono4y, 2ad 6or 3or"orate "ro6its, and 2ad 6or t!e sto31 4ar1et. *nd itGs
so4et!in+ t!at alon+ %it! t!e =ed, t!e rest o6 's s!o'ld %at3! 3losely as %ell.
I %as interested today to see !o% so4e o6 t!e nationGs ne%s"a"ers !eadlined Hreens"anGs re4ar1s.
0!e New York Times said, 7Hreens"an, :roadly Jositive, S"ells O't >e6lation Forries.7
0!e &inancial Times e3!oed t!e de6lation t!e4e %it! t!is !eadline# 7Hreens"an says =ed is ready to
ta31le de6lation.7
:'t t!e Wall Street Journal "layed it do%n, sayin+# 7Hreens"an Says >e6lation Kis1 Is Lo%.7
:ot! t!e Washin'ton Post and (SA To#ay too1 anot!er ta31. 0!e Post said# 7Hreens"an Cints at
*not!er Kate /'t,7 %it! t!e s'2!ead# 7=ed /!ie6 Li1ens Ste" to G0a1in+ O't Ins'ran3eG *+ainst
>an+ers o6 >e6lation.7
(SA To#ay to""ed its story %it! a si4ilar !eadline# 7Hreens"an !ints at 4ore rate 3'ts.7 Its s'2!ead
said# 7>e6lationGs G4inorG t!reat 4ay 3all 6or a3tion 2y =ed.7
So t!ere t!ey are. =ive leadin+ "a"ers %it! t!eir so4e%!at di66erin+ ta1es on t!e sa4e event, as ea3!
6o3'ses on %!at it t!in1s t!e 4ost i4"ortant.
.y vie% is %at3! o't 6or 4ore si+ns o6 de6lation, 6or+et a2o't in6lation any ti4e soon, and e;"e3t at
least anot!er interest rate 3't in t!e %ee1s a!ead
Assignment ".: Case Stud!
Par I
"ash &low an# the Time )alue of *oneyB =rey, S!er4an /., Jr.B Carvard :'siness S3!ool
J'2lis!in>B 08$01$1,-6B 15 "a+es
Absra;: 0!is le3t're note$3ase st'dy 4aterial "rovides a t!oro'+! revie% o6 /as! =lo% and t!e
0i4e Lal'e o6 .oney. 0!is is less o6 a 3ase st'dy and 4ore readin+$<'estion a""roa3! to
learnin+. 0!e 4aterial "rovides a +reat le3t're a33o4"anied %it! <'estions t!at 3an 2e as1ed to
st'dents 6or t!eir 3onsideration.
Re$e9an;y: *lt!o'+! t!e 3itation a""ears to 2e one t!at is dated, t!e 4aterial 3ontained %it!in
t!is 3itation is 3lassi3. It is "resented in a very t!oro'+! 4anner and is a +reat re6eren3e and
a3tivity 6or st'dents to 3o4"lete. 0!e 4aterial is "resented in a 4ore t!eoreti3al 4anner t!an
%!at is ty"i3ally a33o4"lis!ed in a 4ore traditionally5oriented 3ase st'dyNt!is is very 4'3!
6o'ndational 1no%led+e t!at t!e st'dents %ill 6ind 2ene6i3ial 6or t!eir st'dy and 'se in t!e
3or"orate 6inan3e settin+.
Te;=n";a$ As:e;s: St'dents %ill 2e as1ed to read and 3o4"lete <'estions related to t!e ti4e
val'e o6 4oney and 3as! 6lo% analysis. 0!is 4aterial is 3onsidered to 2e 6o'ndational and %ill
"rovide 2aseline 1no%led+e 6or 6't're 3o'rse a3tivities. 0!e readin+ addresses t!e nat're o6

4a1in+ @+o$no +oA de3isions as %ell as t!e 3on3e"t o6 "ay2a31 and 3ost$2ene6it analysis. I
e;"e3t t!at st'dents 3an ans%er t!ese <'estions in 1I) "ara+ra"!s.
*ns%er t!e 6ollo%in+ <'estions in yo'r %rite5'". 0otal o6 100 "oints, e<'ally divided a4on+ t!e
1ues"ons:
1% Does =e ma>n"u<e o# an "n9esmen <eerm"ne =oC $on> one s=ou$< Ca" "n maE"n> a
#"nan;"a$ <e;"s"onJ
.a+nit'de (siEe$i4"ortan3e o6 an invest4ent 6or a 3or"oration is one varia2le a4on+ 4any
t!at one s!o'ld 3onsider %!en 4a1in+ a 6inan3ial de3ision. *s t!is 3ase s!o%s 's, it is also
i4"ortant to 3onsider t!e 3as! 6lo%s o6 a "ro2le4. *6ter dis3o'ntin+ 6or t!e ti4e val'e o6
4oney, i6 t!e net "resent val'e o6 a "ro&e3t is "ositive, t!en one s!o'ld 'nderta1e t!e "ro&e3tB
or else, one s!o'ld not. Ot!er varia2les t!at an analyst s!o'ld 3onsider in 4a1in+ a de3ision
o6 %!en to invest in3l'de t!e relative 6inan3ial !ealt! o6 t!e 3o4"any, 6ore3ast o6 !ealt! o6 t!e
or+aniEation and %!et!er or not t!e invest4ent is "r'dent in t!e 3onte;t o6 ot!er e3ono4i3
6a3tors, and t!e ne3essity to 3onsider t!e @6itA o6 t!e "ro&e3t relative to ot!er 3o4"any
strate+i3 +oals.
). )oC Cou$< =e ;as= #$oC saemen "n F">ure ? ;=an>e "# =e ana$ys ;ons"<ere< a
Q18R an< a O15R s;enar"o :er year o9er =e neH =ree yearsJ ReCorE =e ;as= #$oC
saemen o re#$e; ="s sens""9"y ana$ys"s #or #uure ;as= #$oCsMC=a <o =e annua$
;as= #$oCs $ooE $"Ee us"n> =ese assum:"onsJ Assume s"m"$ar sa$9a>e 9a$ues o;;ur
"n =e erm"na$ year.
In ans%erin+ t!is "ro2le4, t!e st'dents s!o'ld "'t to+et!er a s"reads!eet t!at 'tiliEes t!e
"ara4eters in t!is <'estion. 0!e W10O and I15O s!o'ld 2e a""lied a+ainst t!e sales 6i+'res
in t!e "ro2le4. 0!e res'ltin+ s"reads!eets s!o'ld loo1 so4et!in+ li1e t!e 6ollo%in+
atta3!4ent#

"Module 3 Cash Flow
Solution.xls"
@% Base< on =e s;enar"os :resene< "n F">ure @/ C=";= one Cou$< you :re#erJ
St'dents s!o'ld ans%er t!is <'estion a2o't %or1in+ '" a s"reads!eet sol'tion t!at s!o%s
t!at at di66erent reinvest4ent rates, t!ey 3an !ave di66erent sol'tions. 0!e atta3!ed
s"reads!eet s!o%s several s3enarios o6 !o% t!e analysis 4ay 2e 3ond'3ted. In t!is sol'tion,
it is a""arent t!at i6 t!e interest rate (dis3o'nt rate is less t!an -O, t!en Jro&e3t : s!o'ld 2e
t!e 3!oi3eB i6 t!e dis3o'nt rate is +reater t!an -O, t!en Jro&e3t * s!o'ld 2e t!e 3!oi3e
2e3a'se o6 t!e !i+!er NJL. I6 t!e dis3o'nt rate is X-O, t!en t!e investor %o'ld 2e indi66erent
to eit!er "ro&e3t.
"Module 3 Q3,Q4,
Q5.xls"

A% ,=a are =e oa$ reurns o# =e "n9esmens :resene< "n F">ure @J
0!e ret'rns o6 t!e invest4ents "resented in t!is s3enario 3an 2e inter"reted as t!e IKK in t!is
3ase. St'dents s!o'ld 3al3'late t!e IKK o6 ea3! "ro&e3t 6lo% and dis3'ss %!i3! invest4ent
!as a 2etter IKK.
Kelative to t!e "revio's s"reads!eet, 3al3'lated in E;3el, t!e IKK 6or Jro&e3t * is 10.P6O and
t!e IKK 6or Jro&e3t : is ,.P1O.
5% Insea< o# =e 18R #">ure :resene< "n =e :a:er/ C=a Cou$< =e :resen 9a$ue o# =e
s;enar"os $ooE $"Ee "# =e o::orun"y ;os Cere 1?R "nsea<J Is " #"nan;"a$$y :ru<en
o un<eraEe =e :roKe;J
Usin+ t!e s"reads!eet t!at %as 3onstr'3ted a2ove and e;a4inin+ t!e 1)O dis3o'nt rate
s3enarioB at a dis3o'nt rate o6 1)O, Jro&e3t * NJL Y 5T868.33B Jro&e3t : NJL Y 5T1,-6.--.
Under t!ese 3onditions, neit!er "ro&e3t s!o'ld 2e a33e"ted.
Par II
On "a+es 264-266 o6 t!e te;t, :realey and .eyers des3ri2e a 4ini53ase a2o't 70!e Jones
=a4ily7 (no relation to Jones International University. *6ter readin+ t!is 3ase, 3onsider t!e
1% Fore;as #uure ;as= #$oCs/ aE"n> "no a;;oun o# =e <e;$"ne "n :ro<u;"on an< =e
2:ar"a$$y3 o##se"n> #ore;ase< "n;rease "n o"$ :r";es%
See atta3!ed s"reads!eet.
I6 t!e oil %ells "rod'3e 6or 10 years, t!e NJL %o'ld 2e XT13,,,)8 over t!is ti4e6ra4e. 0!e
lon+er t!e ti4e t!at t!e %ells o"erate, t!ey !i+!er t!e NJL %ill 2e.
"MBA591 DQ3.2
n!o.xls"
?% )oC $on> <oes :ro<u;"on =a9e o ;on"nue #or =e o"$ Ce$$s o be :os""9eBNP(
"n9esmenJ I>nore aHes an< o=er :oss"b$e ;om:$";a"ons%
See atta3!ed s"reads!eet in U'estion 1.
It %o'ld ta1e a little over 6 years to re3o'" t!e initial invest4ent, 2ased '"on t!e analysis.
@% Assume =a you are CorE"n> #or an "n9esmen ;or:ora"on =a "s "nerese< "n ="s
ana$ys"s an< C=e=er or no " s=ou$< "n9es money "no =e o"$ Ce$$ :ro:os""on% Us"n>
your CorE "n Nues"ons 1 an< ? "n ="s :ar/ <ra# a 1B? :a>e memo o sen"or $ea<ers=":
"n =e ;om:any eH:$a"n"n> your re;ommen<a"on%
St'dent res"onses %ill vary. 0!ey s!o'ld in3or"orate 4aterial "resented in t!e 6irst t%o
<'estions. So4e ideas t!at s!o'ld 2e !i+!li+!ted in t!e res"onse#
0!e "ay2a31 6or t!e "ro&e3t is 6 years ('sin+ dis3o'nted 3as! 6lo%s.
0!e NJL 6or t!e "ro&e3t 6or t!e e;"e3ted ten years is T13,,,)8.

0!is analysis does not ass'4e any need 6or re"la3e4ent o6 t!e %ells or 3osts 6or t!e
4aintenan3e o6 t!e %ells. I6 t!ese 3osts %ere in3l'ded, it?s li1ely t!at t!e NJL %ill 2e
lo%er.
0!e IKK 6or t!is "ro&e3t is 15.3O over t!e 105year ti4e6ra4e.
0!e IKK s!o'ld 2e 3o4"ared a+ainst t!e investor?s o""ort'nity 3ost rate to deter4ine
%!et!er or not t!is invest4ent %o'ld 4eet t!e 3riteria.

.O>ULE P
Ass">nmens
Assignment #.1: Forum Discussion
,=a =as been your eH:er"en;e C"= =e e9a$ua"on o# :oen"a$ :roKe;s #or a bus"nessJ
,ere NP(/ IRR/ e;% use<J I# no/ Cas any y:e o# #orma$ me=o<o$o>y use<J
St'dents s!o'ld "rovide an e;a4"le o6 %!ere t!ey !ave 'sed NJL or IKK 6or a "ro&e3t. *lt!o'+!
t!e <'estion indi3ates t!at t!e 6o3's is on a @2'siness,A "ersonal e;a4"les are 6ine as %ell. I6 t!e
st'dents need ideas to 3ra6t a @ne%A a""roa3!, so4e e;a4"les are#
Usin+ NJL 6or 4a1in+ a de3ision on "'r3!asin+ a 3ar
Usin+ NJL 6or deter4inin+ %!et!er or not re6inan3in+ a !o4e is "r'dent
Usin+ NJL to deter4ine t!e @"ay2a31A ti4e6ra4e 6or re6inan3in+ a 4ort+a+e
Usin+ IKK to 3o4"are invest4ent 3!oi3es (6or 3o4"arison o6 2onds, 90. is t!e sa4e as
IKK
I# NP(/ IRR/ e;% Cere no use< "n =e <e;"s"on abo9e/ <o you ="nE =e <e;"s"on o
un<eraEe a >"9en :roKe; Cou$< =a9e been <"##eren =a< =ese me=o<s been use<J
0!is is a &'d+4ent res"onse. St'dents s!o'ld ill'strate %!at t!eir 2'siness de3ision %as and
!o% NJL and$or IKK 3o'ld !ave 2een e4"loyed. In so4e st'dents? e;"erien3es (!o"e6'lly
4ost, t!e de3ision to 'se t!ese ty"es o6 te3!ni<'es is vie%ed as a 2ene6it t!at %o'ld !ave
"rovided @val'eA to t!e 2'siness de3ision 2ein+ 4ade.
Assignment #.: Case Stud! $due in %od &'
$n+estment Analysis an# ,ockhee# Tri StarB Edleson, .i3!ael E-B )ar9ar< Bus"ness S;=oo$
Pub$"s="n>B 11$1-$1,,3B6 "a+es
Su::$emena$ Maer"a$: Tea;="n> Noe/ 25B?91B8@?3/ 1D:/ by M";=ae$ E% E<$eson%
Absra;: * set o6 6ive e;er3ises in 3a"ital 2'd+etin+. St'dent 3al3'lates and 3o4"ares vario's
de3ision 3riteria (in3l'din+ IKK and NJL 6or 3a"ital invest4ent "ro&e3ts. 0!is is an introd'3tory
3ase, in %!i3! relevant 3as! 6lo%s are "rovided, and t!e 6o3's is on t!e dis3o'ntin+ 4e3!ani3s
and t!e de3ision to invest. In addition, one e;er3ise dire3tly "ro2es t!e lin1 2et%een "ositive NJL
"ro&e3ts, and val'e added to t!e s!are!olders. 0!e 6inal e;er3ise is a t!ree5"a+e 4ini53ase
analyEin+ Lo31!eedGs de3ision to invest in t!e 0riStar L51011 *ir2's "ro&e3t. 0!is drives !o4e t!e
i4"ortan3e o6 dis3o'ntin+ and NJL, and s!o%s t!e adverse e66e3t o6 a ne+ative NJL "ro&e3t on
s!are!older val'e.
Re$e9an;y: 0!e 6ive e;er3ises in t!is 3ase st'dy are +eneri3 eno'+! 6or today?s environ4ent
t!at t!ey are 3onsidered to 2e ti4eless. 0!ese "ro2le4s are 6ollo%ed 2y a 3lassi3 3ase o6 t!e
Lo31!eed 0ri5Star "ro+ra4. Kelevan3y to today?s environ4ent 3o'ld 2e 4ade 6or !o% t!e
+overn4ent !as s'2sidiEed t!e 4a&or 3o44er3ial airlines (United, *4eri3an, >elta, et3. relative
to t!e 3'rrent 6inan3ial s3enario o6 t!e 3arriers. In t!e 0ri5Star 3ase, t!e +overn4ent %as as1ed to
@2ail o'tA t!e Lo31!eed "ro+ra4Nar+'4ents t!at are 'sed in today?s e3ono4i3 environ4ent are

very si4ilar$virt'ally identi3al to %!at %as 2ein+ "osited in t!e 1,-0s "oli3y environ4entB i6
/on+ress didn?t 6'nd t!e "ro+ra4, t!en t!e *4eri3an "eo"le %o'ld s'66er si+ni6i3ant losses.
Te;=n";a$ As:e;s: St'dents %ill 2e as1ed to 'se t!eir 1no%led+e o6 3a"ital 2'd+etin+, NJL,
and IKK to 3o4"lete t!is 3ase st'dy %or1. 0!is 3ase is di66erent t!an t!e ot!ers "resented in t!e
3o'rse in t!at t!ere are 6ive "ro2le4s ('"56ront t!at are not related to t!e 0ristar 3ase. St'dents
are "rovided %it! a series o6 "ro2le4s t!at +et t!e4 en+a+ed %it! t!e 4aterial. 0!e "ro2le4s
are oriented to%ard te3!ni3al s1ills li1e 3a"ital 2'd+etin+, IKK, and NJL. Li1e%ise, an added
2on's o6 t!e 0ri5Star 3ase is t!e nat're and 3onsideration o6 s'n1 3osts in t!e 3or"orate
environ4ent. St'dents are as1ed to 3onsider t!is as a 1ey varia2le in t!e analyti3 a""roa3!. I
%o'ld e;"e3t st'dents to ans%er t!e 6ollo%in+ <'estions in 1I) "ara+ra"!s.
Iem ? 21ues"ons #rom =e ;ase su<y "se$#3 2oa$ o# A8 :o"ns3
See t!e atta3!ed s"reads!eet 6or res"onses#
"Module 4, "a#t
1.xls"
1A% Com:ue Payba;E/ NP(/ an< IRR
St'dents 3an ans%er t!e "ay2a31 <'estion 2y eit!er 3onsiderin+ dis3o'nted or non5
dis3o'nted 3as! 6lo%s. I6 t!ey do not dis3o'nt 3as! 6lo%s, t!e "ay2a31 "eriod is - years. I6
t!e st'dents 'se dis3o'nted 3as! 6lo%s to 3al3'late "ay2a31, t!e "ro&e3t %ill not "ay 6or itsel6
%it!in 15 years. 0!e NJL (ass'4in+ a dis3o'nt rate o6 1)O is 3al3'lated to 2e# 5T8PP.P5.
0!e IKK is 3al3'lated to 2e# X11.5O.
1B% Per:eu"y Prob$em
0!is "ro2le4 3onsiders a "er"et'ity o6 TP500 vs. t!e T35000 ori+inal invest4ent. 0!e JL o6
a "er"et'ity o6 TP500 Y TP500$.1) Y T3-,500. /o4"ared to t!e o't6lo% o6 T35,000 in year 0,
t!e NJL o6 t!is a""roa3! %o'ld 2e T),500.
1C% GroC= Per:eu"y Prob$em
0!is "ro2le4 3onsiders an initial (year 1 3as! 6lo% o6 TP000, +ro%t! o6 PO, and a 3ost o6
3a"ital o6 1)O. 0o 6ind t!e JL o6 t!e "er"et'ity, 'se t!e +ro%t! "er"et'ity JL 6or4'la
"rovided in t!e 3ase# JL Y P000$(.1) 5.0P Y T50,000. 0!e NJL Y T50,000 5 T35,000 Y
T15,000.
?% Con;ess"on San< :rob$em
See s"reads!eet 6or sol'tions. Usin+ t!e IKK 3riteria, rentin+ a lar+er stand !as t!e !i+!est
IKK (1)08O. Usin+ t!e NJL r'le, 2'ildin+ a ne% stand (T30,)83 is t!e 2est o"tion.
0!e last "art o6 t!is <'estion as1s 6or %!i3! 3riteria s!o'ld 2e 'sed. St'dents 3an res"ond
NJL or IKK 2ased '"on %!at t!eir ass'4"tion o6 t!e 3o4"any?s o2&e3tive is. 0y"i3ally, a
3o4"any %ill de3ide to +o %it! t!e "ro&e3t %it! t!e !i+!est NJL.
@% MBA Te;= Prob$em
In t!is "ro2le4, t!ere are P s3enarios t!at t!e st'dents are e;"e3ted to 3onsiderNas t!e
6inan3ial analyst 6or t!e or+aniEation, t!e st'dent is e;"e3ted to deter4ine %!i3! o6 t!e 6o'r
"ossi2le s3enarios is t!e @2estA 3!oi3e. 0!e +oal is to 4ini4iEe t!e a4o'nt o6 t!e "otential

s'2sidy t!at t!e or+aniEation %o'ld !ave to "rovideNso, t!e sol'tion s!o'ld 2e 6o3'sed on
deter4inin+ %!i3! sol'tion "rovides t!e lo%est s'2sidy a4o'nt.
0!ere are several %ays t!at t!is "ro2le4 3an 2e a""roa3!ed, ea3! 2ased on t!e
ass'4"tions t!at t!e st'dents 4a1e in t!is "ro2le4. * sa4"le sol'tion is atta3!ed t!at
4a1es s"e3i6i3 ass'4"tions on t!e ti4in+ o6 3as! 6lo%s and a dis3o'nt rate. St'dents 4ay
a""roa3! t!is "ro2le4 %it! di66erent ass'4"tionsB +radin+ s!o'ld 2e 2ased '"on t!e
instr'3tor?s "er3e"tion o6 t!e st'dent?s 3o4"eten3y relative to t!eir ass'4"tions and
a""roa3!.
It?s also 'se6'l 6or t!e st'dent to 3al3'late a 2aseline 3ase t!at de4onstrates t!e NJL and
IKK 'nder t!e 3'rrent 3onditions. 0!is %ill ena2le t!e st'dent to !ave a re6eren3e "oint 6or
3!an+es in t!e re4ainder o6 t!e "ro2le4.
St'dents are not re<'ired to 3o4"lete "art >B t!is 4aterial is not 3overed in t!e 3o'rse.
A% CEO (a$ue Prob$em
See t!e s"reads!eet 6or e;a4"le sol'tions.
Iem @ 21ues"ons "n Ass">nmen A%?3 2oa$ o# D8 :o"ns3
a% ,=a "s =e bus"ness :rob$emI;=a$$en>e =a !o;E=ee< #a;e<J
Lo31!eed %as 6a3in+ si+ni6i3ant 3ost overr'ns and %as as1in+ t!e U.S. +overn4ent 6or a
se3'red loan to 3ontin'e develo"in+$"rod'3in+ t!e L1011. 0!is is a sit'ation t!at %as si4ilar
to t!at %!i3! /!rysler 6a3ed in t!e 1,80s %!en it as1ed t!e U.S. +overn4ent 6or se3'red
loans.
b% A :$anne< :ro<u;"on $e9e$s 2?18 un"s3/ C=a Cas =e rue 9a$ue o# =e Tr"Sar
:ro>ram o !o;E=ee<J
*s t!e 3ase "oints o't, t!e reven'e "er air3ra6t %as e;"e3ted to 2e a""ro;i4ately T16. "er
air3ra6t (1,68 dollars. 0!e avera+e %as e;"e3ted to 2e T1P. "er air3ra6t at t!is "rod'3tion
level. In real ter4s, Lo31!eed %as loo1in+ at 4a1in+ T). "er air3ra6t. F!en t!e st'dents
ans%er t!is <'estion, t!ey 3an 3o'3! t!eir res"onse (i.e., tr'e val'e in ter4s o6 t!is 6i+'re
T). "er air3ra6t, or t!ey 3an ta1e t!e analysis a ste" 6'rt!er and a3t'ally s!o% !o% t!is "ro6it
6i+'re (T). "er air3ra6t over t!e "rod'3tion ti4e6ra4e 3o4"ared to t!e develo"4ent 3osts
t!at %ere 3onsidered. /onsider t!e a4o'nt o6 4oney t!at !ad 2een invested to t!is "oint in
ti4eNst'dents 3o'ld "rod'3e an NJL analysis s!o%in+ !o% t!e 3as! 6lo%s 3o4"are.
*lt!o'+! t!is 4aterial is not "rovided !ere, it is a""arent 2y &'st loo1in+ at t!e initial o'tlays
o6 3ost in 1,6-51,-1 (XT,00. in 3as! 6lo%s, not dis3o'nted is si+ni6i3antly +reater t!an t!e
in6lo%s in reven'e (XT). ; )10 Y TP)0., not dis3o'nted. Hiven t!e ti4e val'e o6 4oney,
any dis3o'nt rate %o'ld yield a ne+ative NJL 6or t!e "ro&e3t at t!e 2ase year o6 1,6-.
;% A a *breaEe9en+ o# @88 un"s/ <"< !o;E=ee< a;ua$$y breaEe9en "n 9a$ue ermsJ
In val'e ter4s, si4ilar to t!e "ro2le4 Z) res"onse, %e !ave to 3onsider t!e li6e 3y3le 3osts o6
t!e entire "ro&e3t 6ro4 start to 6inis! (4eanin+# !o% 4'3! Lo31!eed "'t o't in5ter4s o6 3ost
vs. t!eir reven'e inta1e. Si4ilar to t!e lo+i3 in Jro2le4 Z), Lo31!eed didn?t even 3o4e 3lose
to 2rea1in+ even over t!e li6e o6 t!e "ro&e3t# a+ain, t!e total o'tlays o6 develo"4ent 3osts
%o'ld !ave 2een on t!e order o6 T,00. in 3as! 6lo%s (not dis3o'nted, and t!e in6lo%s o6 300
air3ra6t %o'ld !ave 2een XT600.. :y t!e very nat're o6 t!e 6a3t t!at t!e T600. in in6lo%s
o33'rred 4'3! later in t!e "ro&e3t ti4eline t!an t!e o'tlays, any dis3o'nt rate %o'ld yield a
ne+ative NJL. 0!'s, t!e Lo31!eed "ro&e3tion o6 300 'nits really %asn?t a tr'e 2rea1even
"oint i6 one 3onsidered t!e entire "ro&e3t in val'e ter4s.

<% A C=a sa$es 9o$ume <"< =e Tr"BSar :ro>ram a;="e9e an e;onom"; breaEe9en :o"n
2as o::ose< o an a;;oun"n> breaEe9en :o"n3J
"Module 4 Q4,
Q5.xls"
0!e 'se o6 an e3ono4i3 2rea1even "oint 3onsiders t!e 6a3t t!at t!e 3osts %ere in3'rred '"5
6ront (as stated in t!e "ro&e3t and t!ere aren?t detailed 3onsiderations 6or ta;es, et3.
St'dents 3an "rovide 4ore$less detail 6or t!e ans%er. 0!e atta3!ed ans%er is &'st one
e;a4"le o6 !o% t!e "ro2le4 4ay 2e addressed, 2't is not 3onsidered to 2e t!e only %ay o6
a""roa3!in+ t!is. In solvin+ t!is "ro2le4, 4any ass'4"tions %ere 'sed (dis3o'nt rate o6
10O, no e3ono4ies s3ale li1e 0i4e later ass'4ed, et3.. O2servin+ t!e atta3!ed
s"reads!eet, t!e 2rea1even <'antity (NJL Y 0 at a dis3o'nt rate o6 10O, %as a "rod'3tion
o6 -PP air3ra6t. *+ain, t!e st'dent?s res"onses 4ay vary, 2't t!e 2otto4 line is t!at t!is is a
si+ni6i3antly +reater n'42er t!an %!at Lo31!eed %as "resentin+ at t!e ti4e.
e% ,=a "s =e NP( an< IRR o# =e :roKe;J Do bo= measures y"e$< =e same <e;"s"on
resu$J
In ans%erin+ t!is <'estion, t!e st'dents s!o'ld 4a1e an ass'4"tion re+ardin+ %!i3!
"rod'3tion n'42er t!at is 2ein+ 3onsidered. 0!ere are 4any res"onses t!at 4ay 2e seen 6or
t!is "ro2le4. In solvin+ t!is "ro2le4, a dis3o'nt rate o6 10O %as 'sed to 3al3'late t!e NJL
and 2ot! t!e NJL and t!e IKK %ere 2ased '"on an ass'4"tion o6 t!e ori+inal Lo31!eed
esti4ate o6 300 air3ra6t. 0!e 1ey 6or +radin+ t!is "ro2le4 is to see !o% st'dents
a""roa3!ed in ter4s o6 lo+i3 and 3al3'lations. 0!e NJL %as esti4ated at 5T3,6.. 0!e IKK
%as 3al3'lated to 2e# X5-.33O.
#% ,as =e <e;"s"on o :ursue =e Tr"BSar :ro>ram a reasonab$e oneJ ,=a Cere =e
e##e;s o# ="s on !o;E=ee< s=are=o$<ersJ
St'dents 3an 2olster t!eir ar+'4ents %it! analysis to ans%er t!is. One %o'ld li1ely 3on3l'de
t!at t!e de3ision to "'rs'e t!e "ro+ra4 %as not a 6inan3ially reasona2le one. :esides t!e
6inan3ial 3al3'lations "rovided in "ro2le4s P and 5, one si4"le 4etri3 6or s!are!olders is to
3onsider %!at t!eir sto31 %o'ld !ave 2een %ort! a6ter t!e "ro&e3t %as 3o4"leted. :y 1,-),
t!e Lo31!eed sto31 %as sellin+ 6or T3.)5. 0!is %as do%n 6ro4 a !i+! o6 T-1 in 1,6-. It is
a""arent t!at t!e sto31 4ar1et did not val'e t!e L1011 "ro+ra4 to s'3! an e;tent t!at t!e
3o4"any sto31 de3reased 2y al4ost ,5O.
>% )oC <oes =e Tr"BSar ;ase ;om:are o re;en e9ens "n C=";= =e maKor ;ommer;"a$
a"r$"ners =a9e asEe< ;on>ress o ;ons"<er s">n"#";an subs"<"esJ In =e :os 9I11
en9"ronmen/ Un"e</ De$a/ US A"r/ an< Amer";an a"r$"nes =a9e asEe< Con>ress #or
s">n"#";an subs"<"es%
0!is is an interestin+ <'estion t!at t!e st'dents 3an address in a n'42er o6 %ays. 0!ere is
no s"e3i6i3 analyti3al s'""ort re<'ired 6or t!is <'estion, 2't i6 t!ey desire to 'se <'antitative
analysis to 2olster t!eir 3lai4, so 4'3! t!e 2etter. 0!e s3enarios are si4ilar in t!e sense t!at
t!e nation is 6a3ed %it! a sit'ation in %!i3! it is 2ein+ as1ed to s'2sidiEe a 4a&or 3o4"any to
1ee" its 2'siness r'nnin+. St'dents s!o'ld 'se analo+s to 3o4"are t!e s3enarios in t!eir
res"onse %it! a s"e3i6i3 6o3's on t!e s'2sidiEation iss'e and t!e i4"li3ations 6or t!e 3o'ntry
and avera+e ta;"ayer.
=% Re$a"9e o your ansCer "n =e Tr"BSar ;ase/ =oC Cou$< you ;om:are =e :$">= o# =e
;urren ;ommer;"a$ a"r$"nes C"= ="s ;aseJ .noC"n> C=a you EnoC abou =e re;en

sae o# a##a"rs/ C=a <e;"s"on Cou$< you maEe "# you Cere a<9"s"n> Con>ress as a
#"nan;e :ro#ess"ona$J ,ou$< you su::or =e ba"$ouJ ,=y or C=y noJ
Si4ilar to U'estion -, st'dents s!o'ld &'sti6y t!eir res"onse %it! <'alitative and <'antitative
in6or4ation. In t!eir res"onse, t!ey s!o'ld address t!e 3on3e"ts o6 e3ono4i3 val'e# t!e
need 6or an NJL or IKK ty"e o6 analysis to &'sti6y t!e de3ision.
i. ,=a Cou$< be =e e##e;s o# your <e;"s"on u:on =e Amer";an :ub$";J ,=a y:es o#
;os an<Ior bene#"s Cou$< be "n;urre< by =e so;"eyQ
St'dents s!o'ld address t!is <'estion %it! an e;"lanation o6 !o% t!e servi3es t!at are
"rovided 2y t!e airlines are 3'rrently val'ed 2y t!e *4eri3an "eo"le. /osts %o'ld in3l'de
t!e "ay4ent o6 4onies to 1ee" t!e airlines in 2'siness, or, in t!e 3ase o6 t!e airlines +oin+
o't o6 2'siness, a sa3ri6i3e o6 t!e n'42er and 6re<'en3y o6 6li+!ts in t!e 3o'ntry. 0!e
3onverse %o'ld 2e tr'e 6or deter4inin+ t!e 2ene6its o6 t!e sit'ation# i6 t!e airlines stayed in
2'siness, t!is %o'ld "rovide 4ore 6li+!ts, 4ore 3onvenien3e, et3.

.O>ULE 5
Ass">nmens
NOTE: T=ere "s no ;ase su<y ass">nmen #or Mo< 5% T=e Ass">nmen A%? Case Su<y "s
<ue "n Mo<u$e 5%
Assignment &.1: Forum Discussion
)oC <o you e9a$uae an< Nuan"#y =e ;on;e: o# r"sE "n a sens""9"y ana$ys"sJ
*s o'r dis3'ssion in .od'le 5 des3ri2es, ris1 is synony4o's %it! t!e varia2ility o6 o't3o4es t!at
3an res'lt 6ro4 a de3ision. 0!e 6ield o6 sensitivity analysis is 'sed to "la3e analyti3al 2o'nds
aro'nd "otential o't3o4es to de6ine %!at a ris1 "ro6ile 4ay loo1 li1e. =or e;a4"le, a 2'siness
%o'ld 'se sensitivity analysis 6or 6ore3astin+ 6't're sales, "la3in+ '""er and lo%er 2o'nds aro'nd
%!at it 2elieves %o'ld 2e a++ressive and 3onservative esti4ates, res"e3tively.
Sensitivity analysis ena2les a 6inan3ial "lanner to 3a"t're ris1 2y deter4inin+ !o% ris1y a
"ro"osition is. In t!e sa4e sales 6ore3ast, t!e 6inan3ial "ro6essional 4ay 2ase !is$!er ris1
esti4ates on "ast o't3o4es, or !e$s!e 4ay loo1 to%ard 6't're 3!an+es in a 4ar1et"la3e to !one
an esti4ate. In eit!er 3ase, ris1 3an 2e eval'ated, esti4ated, and in3l'ded in a sensitivity
analysis. 0!e o't"'t o6 t!e analysis is a ran+e o6 "otential o't3o4es t!at are dire3tly related to
t!e ris1 in"'ts t!at %ere in3l'ded.
,=a "n#$uen;es =e re$a"9e r"sE o# a :roKe;J
In t!e %orld o6 6inan3e, t!ere are 4any t!in+s t!at 3an in6l'en3e t!e relative ris1 o6 a "ro&e3t. In
ans%erin+ t!is <'estion, st'dents s!o'ld list e;a4"les o6 in6l'en3es. So4e e;a4"les o6
in6l'en3e t!at t!ey 4ay 3onsider in3l'de t!e 6ollo%in+#
0i4e to 3o4"letion o6 a "ro&e3t
0e3!ni3al 6easi2ility o6 a33o4"lis!in+ a "ro&e3t
Stayin+ %it!in 3ost or 6inan3ial 3onsiderations
.onetary e;3!an+e rates and t!eir i4"a3t '"on t!e 6ir4?s 6ore3asts
E;o+eno's i4"a3ts li1e t!e !ealt! o6 a nation?s e3ono4y, t!e 2orro%in+ rates %!i3!
2'sinesses 3an 2orro% at, t!e o""ort'nity 6or raisin+ 3a"ital at an e;"e3ted rate
/on6iden3e level o6 2ein+ a2le to identi6y 3ontin+en3ies in advan3e and deal %it! 'n6oreseen
events as t!e "ro&e3t evolves
,eb Resour;es
.odelin+ and Si4'lation (!tt"#$$!o4e.'2alt.ed'$nts2ars!$si4'lation$si4.!t4
/!ie6 In6or4ation O66i3er .a+aEine (!tt"#$$%%%.3io.3o4$ar3!ive$0-0103$6ire.!t4l
Kis1 *nalysis Overvie% (!tt"#$$%%%.3rystal2all.3o4$ris15analysis5"rint.!t4l

Introd'3in+ and >e6inin+ Kis1 (!tt"#$$%%%.3enter%orld.net$"!d$data$le3t'reP(invest."d6

.O>ULE 6
Ass">nmens
NOTE: T=ere "s no #orum <"s;uss"on ass">nmen #or Mo<u$e D%
Assignment (.1: Case Stud!
I44'Lo+i3 J!ar4a3e'ti3al /or"B ,erner, JoshuaB Carvard :'siness S3!ool J'2lis!in+B
,$16$1,,6B )0 "a+es
S'""le4ental .aterial# S'""le4ent (=ield, (,5),3506-, )", 2y Jos!'a LernerB 0ea3!in+ Note,
(55),35118, 13", 2y Jos!'a Lerner.
Absra;: I44'Lo+i3 J!ar4a3e'ti3al /or"., a develo"4ent5sta+e 2iote3!nolo+y 3o4"any, is
3onsiderin+ 4a1in+ an initial o66erin+ o6 3o44on sto31. 0!e diverse "ers"e3tive o6 t!e
entre"rene'r, vent're 3a"italist, invest4ent 2an1er, and instit'tional investor are e;"lored.
Jro2le4s o6 val'ation are !i+!li+!ted. 0!e 3!allen+es "osed 2y 7%indo%s7 6or "'2li3 o66erin+s are
3onsidered.
Tea;="n> Pur:ose: 0o e;"lore i4"li3ations o6 +oin+ "'2li3B to e;a4ine t!e 4otivation o6 t!e
vario's a3tors in t!e +oin+ "'2li3 de3isionB and to 'nderstand t!e "ro2le4 o6 val'ation.
Re$e9an;y: 0!e val'ation o6 a real5%orld 6ir4 t!ro'+! a 3ase st'dy li1e t!is is relevant 6or t!e
st'dents, and t!e e;"e3tation is t!at 4astery o6 t!e val'ation 4et!ods "resented in t!is 3ase
st'dy, alon+ %it! t!e 3o'rse 4aterial, %ill "rovide t!e st'dents a %ell5ro'nded a""roa3! to t!e
val'ation te3!ni<'es. 0!e I44'lo+i3 3ase is 6o3'sed on a "!ar4a3e'ti3al 3o4"any, one %!i3!
is si4ilar to 4any, s4all, Sili3on Lalley 2iote3! ty"e 6ir4s t!at are in e;isten3e today. 0!e
"ers"e3tives "resented in t!e 3ase, in3l'din+ t!e 3o4"etitiveness o6 t!e 2iote3!nolo+y 6ield, are
very relevant today and !ave not 3!an+ed 4'3! d'rin+ t!e last de3ade. One t%ist on t!is 3ase
st'dy, t!ro'+! 4y resear3!, is t!at I44'lo+i3 %as li<'idated in )001 d'e to val'ation "ro2le4s. I
intend to 'se t!e @4eatA o6 t!e 3ase st'dy to val'e t!e 6ir4 in t!e early 1,,0s and t!en 3o4"are
to %!at 4ay !ave trans"ired in t!e late 1,,0s. 0!is latter 4aterial %ill 2e o'tside t!e 2o'nds o6
t!e 3ase st'dy, "ro"er, 2't %ill allo% t!e st'dents to deter4ine %!at a3t'ally !a""ened to
I44'lo+i3.
Te;=n";a$ As:e;s: St'dents %ill 2e as1ed to 'se real5%orld data$3o4"any to deter4ine
val'ation o6 a 3o4"any, I44'lo+i3, in t!e "!ar4a3e'ti3al se3tor. Lal'ation %ill 2e "ri4arily
6o3'sed on sto31s (as eviden3ed 2y t!e 3ase st'dy, 2't I %ill also "rovide <'estion on t!e
"otential 6or 2ond iss'an3e as %ellNand t!e tradeo66s 2et%een I44'lo+i3?s o66erin+ o6 e<'ity via
sto31 and t!e "otential 3o4"arison to 2onds. 0!is 3ase st'dy %ill re<'ire a !i+!er level o6
synt!esis on t!e "art o6 t!e st'dents to 2e a2le to inter"ret in6or4ation and a""ly 1no%led+e. It is
e;"e3ted t!at st'dents %ill 2e re<'ired to res"ond to t!e <'estions 2elo% in 1I) "ara+ra"!s.
*ns%er t!e 6ollo%in+ <'estions in yo'r %rite5'". 0otal o6 100 "oints, e<'ally divided a4on+st t!e
a% ,=a "s =e bus"ness :rob$emI;=a$$en>e =a Immu$o>"; #a;e<J
I44'lo+i3 6a3ed t!e 3!allen+e o6 deter4inin+ !o% to +o IJO and at %!at "ri3e its sto31
s!o'ld 2e initially o66ered on t!e o"en 4ar1et.

2. ,=a Cere Immu$o>";6s :ro<u;s an< bus"ness #o;usJ )oC <"< =ese a::ear o #" "no
=e marEe:$a;e a =e "meQ
J!ar4a3e'ti3als, s"e3i6i3ally 6o3'sed on aller+y related "rod'3ts and a'toi44'ne diseases
(li1e art!ritis and dia2etes. :ot! "rod'3ts see4ed to 2e relevant to 4ar1et 6o3's, al2eit,
2ot! %ere 3o4"etin+ in very 3o4"etitive 4ar1et s"a3es %it!in t!e "!ar4a$2iote3! arena.
;% I# you Cere a member o# Immu$o>";6s IPO assessmen eam/ C=a re;ommen<a"on
Cou$< you =a9e ma<e <ur"n> =e #"rs >oBaroun< "n =e ear$y 1998sJ Su::or ="s
ansCer C"= a::ro:r"ae ana$ys"s an< <es;r":"on%
St'dent res"onses to t!is <'estion %ill vary. *nalysis and <'antitative do3'4entation are
en3o'ra+ed 6or t!is se3tion, s"e3i6i3ally s!o%in+ t!e 3o4"etitiveness o6 IJS o6 2iote3! 6ir4s
d'rin+ t!e early ,0?s. So4e ideas t!at 4ay 2e "resented in t!is se3tion in3l'de t!e 6ollo%in+#
* stron+ 3ase 3o'ld 2e 4ade 6or +oin+ IJO i44ediately or delayin+ t!e IJO.
0!ere %ere li4ited o""ort'nities 6or 2iote3! 6ir4s to enter t!e IJO 4ar1et "la3eB
de3isions to +o !ad to 2e 4ade relatively 6ast and needed to 2e %ell5"re"ared 6or t!e
initial o66erin+.
:iote3! 6ir4s t!at !ad +one IJO !ad a""re3iated over )5O %it!in a relatively s!ort "eriod
o6 ti4e.
I44'lo+i3 !ad esta2lis!ed a "otential 3olla2orative a+ree4ent to 3o44er3ialiEe one o6
its aller+y "rod'3ts.
I44'lo+i3 sta66 %ere not a%are o6 t!e +eneral IJO 3li4ate and !o% s4all 6ir4s li1e it
3o'ld easily 2e ta1en over 2y lar+er vent're 3a"italists.
0!ere %as si+ni6i3ant (and real ris1 to I44'lo+i3 +oin+ "'2li3# i6 no one 2o'+!t t!eir
s!ares, t!is 3o'ld adversely i4"a3t t!e 3o4"any in t!e lon+er r'n.
d. )oC Cou$< you 9a$ue Immu$o>";6s so;E o##er"n>J ,=a Cou$< be a ar>e :r";e an<
=oC Cou$< you arr"9e a ="sQ
St'dent res"onses %ill vary to t!is. U'antitative$analyti3al in6or4ation is en3o'ra+ed to
s'""ort de3isions in t!is se3tion. So4e s"e3i6i3 t!o'+!ts relevant to t!is <'estion are#
0!e @red !errin+A 3ir3'lated 2y .errill Lyn3! indi3ated a "ri3e o6 T1PIT16 "er s!are.
0!e Ke+eneron IJO s!o%ed t!at t!e "ri3e o6 t!e 3o4"any?s sto31 dro""ed 2y )0O
d'rin+ t!e 6irst ) days o6 tradin+ (started at T))$s!areB over 30O over t!e 6irst ) %ee1s.
Jost5Ke+eneron IJO?s %ere not vie%ed 2y investors as a desira2le invest4ent.
*s t!e "ri3e o6 Ke+eneron?s sto31 6ell, t!e @2oo1A o6 orders 6or I44'lo+i3 sto31 s!ran1
daily. *nalysts 3on3l'ded t!at t!e 3o4"any %o'ld !ave to sell at a lo%er "ri3e ("ossi2ly
T11, T13, or even T10.
e% Re$a"9e o o=er IPO o##er"n>s <ur"n> =e same "me#rame as Immu$o>";/ =oC Cou$<
Immu$o>"; ;om:are "nBerms o# :oen"a$ :r";e an< ;om:e""9eness%
Kelative to t!e ans%er in U'estion P, t!ere %ere si+ni6i3ant 3on3erns re+ardin+ !o% si4ilar
I44'lo+i3 %o'ld 2e relative to ot!er 2iote3! IJOs t!at did not s'33eed.

#% Con<u; resear;= on =e ,or$< ,"<e ,eb o <eerm"ne =e sae o# Immu$o>"; o<ay%
Des;r"be =e ;urren saus o# =e ;om:any% Ensure o :ro9"<e re$e9an ;"a"ons/
C=ere a::$";ab$e%
I44'lo+i3 %ent 2an1r'"t in 1,,,. 0!e assets o6 t!e 3o4"any %ere li<'idated in )000 and
s"lit5'" a4on+ several ot!er 2iote3!$"!ar4a 3o4"anies.
+. )oC <oes =e ;urren saus o# Immu$o>"; ;om:are o =a C=";= you ana$yLe< "n =e
;ase su<yJ ,ou$< you =a9e :re<";e< ="s ou;ome re$a"9e o your rea<"n> "n =e
;ase su<yQ
It see4s t!at t!ey !ad a %ea1 "rod'3t in t!e 4ar1et"la3e relative to 4any ot!ers, alt!o'+! it
%o'ld !ave 2een di66i3'lt to "redi3t t!e 2an1r'"t3y t!at later res'lted.
=% ,=a "s your =y:o=es"s o# C=a =a::ene< o Immu$o>";MC=a <o you be$"e9e
:re;":"ae< ="s ou;omeJ
In revie%in+ 4aterial on t!e Fe2, it is a""arent t!at I44'lo+i3 %as not a2le to t'rn a "ositive
3as! 6lo% and 3ontin'ed to 2orro% 4oney to "lo% into resear3! and develo"4ent.
E;a4ination o6 t!e I44'lo+i3 "rod'3t ni3!e indi3ated t!at t!is %as not a +ro%in+ ind'stry in
t!e 1,,0s and li1ely led to I44'lo+i3?s 3olla"se. 0!ey %ere too narro% in t!eir invest4ent
strate+y (dr'+ "ort6olio5%ise and 6o3'sed on an area %it!in t!e "!ar4a3e'ti3al 4ar1et t!at
%as not "ro6ita2le. *not!er "ro2le4 6o'nd in resear3!in+ t!e 3o4"any %as t!at one o6 its
1ey "rod'3ts %as "'lled 6ro4 t!e =>* trial "ro3ess "rior to la'n3!. 0!is 3a'sed t!e 3o4"any
to si+ni6i3antly reor+aniEe "rior to its event'al 2an1r'"t3y.
"% )oC Cou$< you 9a$ue Immu$o>"; o<ayJ .noC"n> C=a you EnoC o<ay/ =oC Cou$<
you ;=an>e your =ou>=s on 9a$ua"on 2assum:"ons/ me=o<s/ ana$ys"s3 =a Cas
:er#orme< ear$"er3J
Lal'ed at a lo%er a4o'nt t!an %!at %as "revio'sly done. *""roa3! %o'ld !ave in3l'ded a
2roader loo1 at t!e 4ar1et %it! a s"e3i6i3 6o3's on t!e "rod'3t5set t!at I44'lo+i3 %as +oin+
to vent're into. .ore attention "aid to t!e 2iote3! ind'stry and tro'2le %it! IJOs s!o'ld !ave
sent 3lear si+nals t!at t!e environ4ent %as not @"ri4edA 6or t!is ty"e o6 IJO.

.O>ULE -
Ass">nmens
Assignment ).1: Forum Discussion
,=y <oes <"9ers"#";a"on o# "n9esmens re<u;e r"sEJ
*s %e sa% in t!is 4od'le, diversi6i3ation red'3es ris1 2y red'3in+ t!e "otential variation in one?s
"ort6olio. =or e;a4"le, t!e 4ore o6 one ty"e o6 asset (li1e an individ'al sto31 t!at is !eld, t!e
+reater t!e li1eli!ood t!at t!e individ'al %ill e;"erien3e 4ore si+ni6i3ant variation t!an i6 several
assets (%it! o""osite ret'rns %ere !eld. In de6inin+ %!at diversi6i3ation 4eans, 4ost 6inan3ial
"lanners %ill 'se 6inan3ial 4eas'res li1e t!e 2eta o6 an asset and t!e "er6or4an3e o6 t!e asset
over vario's years to deter4ine !o% ris1y (i.e., !o% 4'3! ret'rns vary and !o% 3y3li3al ret'rns
are (2ot! in t!e "ositive and ne+ative.
,=a are some Cays you Cou$< <"9ers"#y your "n9esmen :or#o$"o o m"">ae r"sEJ
0!ere are several %ays to do t!is. =ro4 a "ersonal 6inan3e "ers"e3tive, t!is 4i+!t in3l'de
investin+ in di66erent ty"es o6 invest4ent ve!i3les# 2onds, sto31s, 4't'al 6'nds, 3as!, et3.
Li1e%ise, t!e invest4ents 3an 2e 2roadened into do4esti3 or international 4i;esB or +ro%t! vs.
in3o4e, et3. 0!e diversity o6 a "ort6olio 3an also 2e a3!ieved 2y e;a4inin+ t!e individ'al 2etas o6
assets 3o4"ared to t!e 2eta o6 t!e "otential "ort6olio, as a %!ole.
Is =ere su;= a ="n> as Po9erB<"9ers"#";a"onPJ
0e3!ni3ally s"ea1in+, one %o'ld 2e overdiversi6ied i6 t!ey in3l'ded assets in a "ort6olio %!i3!
overla""ed or d'"li3ated one anot!er =or e;a4"le, i6 one 2o'+!t s!ares o6 4't'al 6'nd [ and
4't'al 6'nd 9 and t!e t%o 6'nds !eld e<'ities o6 t!e sa4e 3o4"anies, t!is %o'ld 2e an e;a4"le
o6 overdiversi6i3ation# !oldin+ 4ore assets t!an is needed to a3!ieve a desired level o6
diversi6i3ation. 0!e do%nside to overdiversi6yin+ is o2served in t!e "otential, additional 3osts t!at
one 4ay "ay to !old t!e n'42er o6 assets. =or e;a4"le, it is li1ely to 2e less e;"ensive to !old a
lo%er n'42er o6 assets (as o""osed to a !i+!er n'42er o6 assets i6 t!e lo%er n'42er o6 assets
a3!ieves t!e sa4e level o6 diversi6i3ation as t!e lar+er n'42er o6 assets.
,eb Resour;es
SI* Investor (!tt"#$$%%%."at!toinvestin+.or+$
Jersonal Investor
(!tt"#$$%%%."ersonalinvestor.3o4.a'$van+'ard$)0*,:PP1=/*-P18,:8:-03:E-61)6--E.as"
*sset *nalysis (!tt"#$$%%%.asset5analysis.3o4$assetallo3$aadiversi6i3ation.!t4l
Investo"edia (!tt"#$$%%%.investo"edia.3o4$'niversity$ris1$ris13.as"
Assignment ).: Case Stud! $due in %odule *'
*arriott "orp-. The "ost of "apital /A0ri#'e#1B K'2a31, Ki3!ard S.B Carvard :'siness S3!ool
J'2lis!in+B 03$10$1,,8B 10 "a+es
S'""le4ental .aterial# 0ea3!in+ Note, (55),85081, 18", 2y Ki3!ard S. K'2a31.

Absra;: 0!is 3ase st'dy 6o3'ses on t!e .arriott /or"oration and des3ri2es t!e !istory o6
.arriott, its 3'rrent 2'siness (and asso3iated divisions and t!e relations!i" 2et%een 3ost o6
3a"ital$!'rdle rates and 3or"orate "ro6ita2ility. 0!is 3ase st'dy %ill "rovide st'dents t!e
o""ort'nity to e;"lore !o% a 3o4"any 'ses t!e /a"ital *sset Jri3in+ .odel (/*J. to 3o4"'te
t!e 3ost o6 3a"ital 6or ea3! o6 its divisions. 0!e 'se o6 Fei+!ted *vera+e /ost o6 /a"ital (F*//
6or4'la and t!e 4e3!ani3s o6 a""lyin+ it are stressed. 0!ere are a total o6 8 <'estions
asso3iated %it! t!is 3ase st'dyNst'dents %ill 2e as1ed to %rite ans%ers to ea3! in 1I)
"ara+ra"!s.
Re$e9an;y: 0!e 3al3'lation o6 F*// t!ro'+! t!e 'se o6 /*J. is a very relevant to"i3 t!at is a
ne3essary s1ill. 0!e .arriott 3ase is relevant to today?s 6inan3e environ4ent 2e3a'se o6 t!e
si4ilar str'3t're t!at .arriott !as today. Kesear3! on t!e 3o4"any indi3ates t!at .arriott is still
str'3t'red a33ordin+ to t!ree 4ain "rod'3ts (lod+in+, 3ontra3t servi3es, and related 2'sinesses.
0!is 3ase st'dy is one o6 very 6e% t!at I 6o'nd t!at addresses t!e 3al3'lation o6 F*// via /*J.
in a dire3t 4annerNyet si4'ltaneo'sly allo%in+ 6le;i2ility (2e3a'se o6 t!e asso3iated data
"rovided %it! t!e 3ase st'dy to address ot!er to"i3s (:eta 3al3'lation, !ealt! o6 t!e 3o4"any,
et3.. 0!e "ro2le4s "resented in t!is 3ase st'dy are relevant today as t!ey %ere in 1,8, %!en
t!ey %ere 6irst "resented.
Te;=n";a$ As:e;s: St'dents %ill 2e as1ed to 'se real5%orld data$3o4"any to deter4ine F*//
t!ro'+! t!e 'se o6 t!e /a"ital *sset Jri3in+ .odel (/*J.. Unli1e te;t2oo1 e;a4"les, %!i3!
tend to "rovide all o6 t!e varia2les asso3iated %it! F*// 3al3'lation, t!is 3ase st'dy %ill re<'ire
a !i+!er level o6 synt!esis on t!e "art o6 t!e st'dents to 2e a2le to inter"ret in6or4ation and a""ly
1no%led+e.
*ns%er t!e 6ollo%in+ <'estions in yo'r %rite5'". 0otal o6 100 "oints, e<'ally divided a4on+st t!e
a% ,=a "s =e bus"ness :rob$emI;=a$$en>e =a Marr"o "s #a;e< C"=J
0!e .arriott /=O is interested in re5e;a4inin+ t!e role o6 t!e !'rdle rate at .arriott. /o!rs
realiEes t!at t!e 6ir4?s !'rdle rate 3an si+ni6i3antly i4"a3t t!e 6ir4?s 6inan3ial and o"eratin+
strate+ies. *s a r'le o6 t!'42 at .arriott, /o!rs esti4ated t!at in3reasin+ t!e !'rdle rate 2y
1O (6ro4 1)O to 1).1)O, 6or e;a4"le de3reases t!e "resent val'e o6 "ro&e3t in6lo%s 2y 1O.
:e3a'se .arriott?s 3osts re4ained ro'+!ly 6i;ed, t!ese 3!an+es in t!e val'es o6 in6lo%s
translated into 3!an+es in t!e NJL o6 "ro&e3ts. I6 !'rdle rates %ere to in3rease, .arriott?s
+ro%t! %o'ld 2e red'3ed as on3e "ro6ita2le "ro&e3ts no lon+er 4et t!e !'rdle ratesB
3onversely, i6 !'rdle rates %ere lo%ered, .arriott?s +ro%t! %o'ld a33elerate. .arriott %as
also 3onsiderin+ 'sin+ t!e !'rdle rates to deter4ine in3entive 3o4"ensation.
b% Ana$yLe an< <"s;uss F">ure A "n =e ;ase su<y% ,=a "s your assessmen o# Mr%
Co=rs6 asser"on =a :ro#"ab"$"y <e;reases #or "n;reases "n Marr"o6s =ur<$e raeJ
St'dents s!o'ld dis3'ss t!e relations!i" 2et%een !'rdle rate and "ro6it at .arriott.
3. ,=a are =e ;oss o# ;a:"a$ #or =e =ree <"##eren <"9"s"ons 2$o<>"n>/ ;onra;
ser9";es/ an< re$ae< bus"ness3J Ca$;u$ae =e ,ACC #or ea;= an< <es;r"be your
assum:"ons an< me=o<s.
St'dents s!o'ld 3al3'late t!e F*// 6or ea3! division. :a315'" <'antitative in6or4ation
s!o'ld 2e s!o%n. /al3'lations 4ay di66er 2ased '"on !o% t!e st'dents a33o'nted 6or de2t
and e<'ity as %ell as t!e ass'4"tions 4ade t!at %ere 'sed to 3reate t!e F*// 6or ea3!
division.

<% I# you Cere a #"nan;"a$ ana$ys "n Marr"o6s ;or:orae #"nan;e <"9"s"on/ C=a Cou$< be
your re;ommen<a"on o =e CFO re>ar<"n> =e Marr"o ;os o# ;a:"a$ #or use "n
ana$yL"n> #uure :roKe;sJ
St'dent res"onses %ill vary 2't s!o'ld 6o3's on t!e 6ollo%in+ ideas#
/ost o6 3a"ital s!o'ld 2e re"resentative o6 vario's divisionsB 4ore %ei+!t "otentially
+iven to t!e divisions %it! +reatest reven'es or "otential reven'es in t!e 6't're
/ost o6 3a"ital in6or4ation is 3ontained in t!e 3ase st'dy 6or t!e divisions
=ir4 ris1 and 6o3's s!o'ld 2e 3ontrasted to individ'al division ris1 and 6o3's in arrivin+ at
a 3or"orate rate
e% )oC Cou$< you "ner:re =e Bea o# 8%9F an< <es;r"be ="s o a :oen"a$ "n9esor "n
=e ;om:anyJ )oC <oes ="s Bea ;om:are o Marr"o6s ;om:e"orsJ
0!e 2eta o6 .,- 4eans t!at t!e 3o4"any?s sto31 is a2o't as volatile as t!e overall 4ar1et
"la3e. I6 it %ere volatile in t!e sa4e 4anner as t!e overall sto31 4ar1et, t!e 2eta %o'ld 2e
1.0. In "ra3ti3al ter4s, t!is 4eans t!at one %o'ld e;"e3t t!e ret'rn o6 t!e !otel?s sto31 to 2e
a""ro;i4ately t!e sa4e as t!at o6 t!e 4ar1et d'e to t!e 6a3t t!at t!e ris1, des3ri2ed as t!e
2eta (volatility o6 ret'rns, is a""ro;i4ately t!e sa4e.
#% Mr% Co=rs "s ;on;erne< abou =e "me#rames asso;"ae< C"= =e measuremens "n
F">ures A an< 5% ,=a Cou$< be your re;ommen<a"on as o C=";= me=o< 2>eomer";
or ar"=me";3 s=ou$< be use< #or your ana$ys"sJ
St'dent res"onses %ill vary. Co%ever, dis3'ssion s!o'ld 6o3's on %!i3! rate is t!e 4ost
re"resentative o6 t!e 6't're 6ore3asts o6 ret'rns. Li1e%ise, variation o6 ret'rns s!o'ld 2e
ta1en into 3onsideration. I6 re3ent years %ere 4ore volatile t!an !istori3al ret'rns, it 4ay 2e
4ore "r'dent to 3!oose a 4et!od o6 3al3'lation t!at 4ini4iEes t!e variation ('" or do%n o6
t!e ret'rns.
>% ,=a Cou$< be your re;ommen<a"on o =e CFO #or #uure :roKe; "n9esmensJ
S:e;"#";a$$y/ C=";= :or"on o# =e Marr"o bus"ness a::ears o be =e mos :ro#"ab$e
an< su"ab$e #or #uure "n9esmenJ
St'dent res"onses %ill vary. Kes"onses s!o'ld 2e arti3'lated in t!e 3onte;t o6 t!e di66erent
2'siness lines and in6or4ation "resented in t!e a""endi3es o6 t!e 3ase st'dy. E;!i2it ) is a
+ood re6eren3e 6or t!is re3o44endation. *nalyti3al$<'antitative in6or4ation t!at s!o%s
relative 3!an+es over ti4e or even 6ore3asted in6or4ation %o'ld 2e en3o'ra+ed !ere.
=% I# =e Marr"o CFO asEe< #or you o <eerm"ne =e *=ea$=+ o# =e ;om:any/ =oC Cou$<
you ansCer ="s Nues"on re$a"9e o =e <aa :ro9"<e< "n =e ;ase su<yJ Cons"<er =e
use o# ="sor";a$/ $on>"u<"na$ <aa :ro9"<e< "n =e <aa ab$es%
Kes"onses %ill vary. Co%ever, loo1in+ at t!e in6or4ation "resented in t!e a""endi; indi3ates
t!at t!e 6ir4 !as !ad stron+, "ositive +ro%t! over t!e ti4e6ra4e 3onsidered. St'dents s!o'ld
<'anti6y t!is +ro%t! (si4ilar to t!e res"onse in U'estion - and 2a315'" t!eir
re3o44endations %it! analyti3al$<'antitative in6or4ation.

.O>ULE 8
Ass">nmens
NO0E# 0!ere is no 3ase st'dy assi+n4ent 6or .od'le 8. 0!e *ssi+n4ent -.) /ase St'dy is d'e
in .od'le 8.
Assignment ).1: Forum Discussion
,=en s=ou$< a #"rm use ,ACCJ ,=en s=ou$< " no use ,ACCJ
*s .od'le 8 and o'r te;t "oints o't, t!ere are 4any 'se6'l a""li3ations o6 F*//. F*// %or1s
6or "ro&e3t eval'ations %!en t!ey are identi3al (in s3o"e and a""roa3! to t!e 6ir4. I6 t!e "ro&e3t
is si4ilarly 6inan3ed (de2t$e<'ity ratios as to !o% t!e 6ir4 is 3'rrently levera+ed, t!en F*// is
very 4'3! a""li3a2le. F!en "ro&e3t ty"es tend to loo1 4'3! di66erent in 3o4"osition
(de2t$e<'ity t!an !o% t!e 6ir4 is levera+ed, t!en F*// is "ro2a2ly not a""ro"riate. 0!e 1ey
!ere is to a""ly F*// in 3ases t!at are analo+o's to 6ir4 str'3t're and not a""ly it to t!ose
s3enarios t!at are not analo+o's.
=or e;a4"le, t!e F*// is a +ood startin+ "la3e 6or 3ost o6 3a"ital rate develo"4ent. It
re"resents t!e a++re+ate 6ir45%ide 3ost o6 raisin+ ne% 4oney and is 2ased on esti4ated ret'rns
e;"e3ted 2y investors. =inan3ial analysts s!o'ld 2e %ary o6 'sin+ t!e or+aniEation?s F*// as
@t!eA dis3o'nt rate 6or 'se in eval'atin+ all "ro&e3ts d'e to t!e reasons 3ited a2ove, as %ell as t!e
6a3t t!at F*// does not re"resent t!e o""ort'nity 3ost o6 3a"ital or t!e ris1 o6 t!e "ro&e3t. :ot!
6a3tors s!o'ld 2e in3l'ded in t!e 6inal deter4ination o6 t!e dis3o'nt rate t!at is 3!osen.
,eb Resour;es
State o6 0e;as (!tt"#$$%%%.%indo%.state.t;.'s$ta;in6o$"ro"ta;$o+4an$o+4anV3.!t4l
=ederal /o44'ni3ations /o44ission
(!tt"#$$%%%.633.+ov$:'rea's$/o44onV/arrier$Ne%sVKeleases$1,,8$nr338068.!t4l
>e"art4ent o6 Ener+y (!tt"#$$%%%.eia.doe.+ov$3nea6$ele3tri3ity$"'2Vs'44aries$6inan3e.!t4l


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