Question Description

Please useone of the two styles of analysis listed below.

The firsttype is more technical, as “Using MSFT to demonstrate the optimal capitalstructure trade-off theory” shows. In such reports, detail number crunching andanalysis are used in various parts of the report. To accommodate with thisapproach, you need have a good understanding and solid grip of the technical toolsof the financial analysis.

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

As Iunderstand, some of you are more financially technical, whereas others are lessso. I have no preference to either approach, though some number crunchingshould be in your report.

Case 57Fonderia di Torino S.P. A.

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

You shouldtry to answer the following questions:

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

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

3. ShouldFrancesca Cerini proceed with the project?

Tocompletely answer the above questions, you should also consider the followingquestions (you need not to directly answer these questions). If you can answerthe following questions, answers to the above required can be easilyidentified.

1.  What is the basic nature of the problem inthis case?

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

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

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

5.  Are youuncertain about any of the assumptions? What does a sensitivity analysis ofthose assumptions reveal?

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

7.  What should Francesca Cerini recommend to herboard of directors?

Case 58Negotiations Between Chrysler Corporation and Diamler (attached)

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

You shouldtry 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 itscounterparty? Why should your company and the counterparty company want tonegotiate?

2.  What are the likely high and low values ofChrysler? 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 Daimlerin this transaction?

4.  Prepare a specific recommendation for the structure of a proposedcombination of Daimler and Chrysler, addressing all of the negotiable itemslisted in the concluding section of the case. What steps should the decision makertake? What should be said to whom?

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