Case Questions for MGM 828, Fall 2012 Case 1: The Euro in Crisis a) Evaluate the European Central Bank’s (ECB) response to the financial crisis of 2008-2010. What was their analysis of the problem? b) The ECB responded less aggressively than the US Federal Reserve to the crisis. Why? c) In May 2010, should the ECB agree to purchase Greek sovereign debt? Case 2: Foreign Ownership of US Treasury Securities a) Why is foreign ownership of US Treasury securities rising? It is more interesting for foreigners to buy US debt to hedge their holdings. - Accumulating budget deficit (mandatory public spending, military spending) huge military spending due to wars in Iraq and Afghanistan. 9/11 and war on terrorism. Foreign investors …show more content…
In this scenario, predict the direction of change in the US real interest rate and the real value of the US dollar. d) Consider the stylized fact that developed economies have aging populations while most emerging economies have populations that are much younger. Would demographics affect production, savings, and consumption, which in turn affect international flows of goods and capital? Case 3: East Cameron Partners: The Sukuk Bond a) What are the financing alternatives open to East Cameron? What are some of the pros and cons of these alternatives with respect to East Cameron’s goals? b) How does the structure of the Sukuk bond differ from the alternatives being proposed by hedge funds and private equity? Why would this structure be of interest to investors? Why would it be of interest to East Cameron? c) Would you classify the Sukuk as debt or equity? Would it matter? Case 4: Globalizing the Cost of Capital and Capital Budgeting at AES a) How would you evaluate the capital budgeting method used historically by AES? What’s good and bad about it? b) If Venerus implements the suggested methodology, what would be the range of discount rates that AES would use around the world? Does this make sense as a way to do capital budgeting? c) What is the value of the Pakistan project using the cost of capital derived from the new methodology?
1. Given the proposed financing plan, describe your approach (qualitatively) to value AirThread. Should Ms. Zhang use WACC, APV or some combination thereof? Explain. (2 points)
3. Explain two methods that can be used in order to identify realistic estimations when developing a budget. [2.2]
Finally, in order to complete a more accurate comparison between the two projects, we utilized the EANPV as the deciding factor. Under current accepted financial practice, NPV is generally considered the most accurate method of predicting the performance of a potential project. The duration of the projects is different, one lasts four years and one lasts six years. To account for the variation in time frames for the projects and to further refine our selection we calculated the EANPV to compare performance on a yearly basis.
1. What is private-equity investing? Who participates in it and why? How is Palamon positioned in the industry?
1. How would you evaluate the capital budgeting method used historically by AES? What’s good and bad about it?
Question 5: Evaluate the Put-Warrant/Convertible Bond proposal. Does it solve Intel’s capital structure dilemma? What arguments might be made in favor of it?
3. Explain two methods that can be used in order to identify realistic estimations when developing a budget. [2.2]
Three interrogations were thus to answer. Should the company provide investors with classic bonds or give them the opportunity to convert them into equity? Should they structure the offer with a fixed or a floating coupon rate? And last but not least, where should they locate the operation?
Our estimated cost of capital, 20.81%, is lower than Ricketts’ expected return, 30%-50%, thus the investment is worthy. However, it’s higher than other pessimistic members’ expected return, 10%-15%, making the decision more complex and requiring further valuation。
Life insurance is meant to provide funds to replace a breadwinner's to protect and support dependents. Chad and Haley are dependents, not income providers. Therefore, the purchase of life insurance is unnecessary and not recommended. The Dumonts should use the money they would spend on policies for the children to increase their own coverage.
Q. 1. What were the major factors that led to the recent financial crisis? How did we get here?
3. What restructuring option – Icahn’s spin-off proposal or the company’s targeted stock proposal – will create the most value for shareholders? For creditors? For the firm’s other stakeholders?
2. How does Marriott use its estimate of its cost of capital? Does this make sense?
Briefly explain the rise and fall of LTCM. What was the moral hazard issue the fed was worried about? How did they try and get around the moral hazard issue? What specifically was the Fed's role in the bailout? What roles specifically did Bear play and not play in the LTCM's life and death?