Case Questions

1691 WordsOct 27, 20117 Pages
CASE QUESTIONS Cash Flows and Value. Cost of Capital Case 1: Hop-In Food Stores, Inc. 1. Determine the correct price for this particular IPO. Use several methods to do this and compare them. 2. What extra information would you try to acquire in a real life situation? Case 2: Chem-Cal Corporation 1. How do you calculate the WACC for this firm? 2. What is the cost of capital of the debt, preferred stock, and common stock (assume the equity beta is 1.22)? 3. Calculate the WACC. How can a WACC be used? 4. Which projects should be selected? (State your assumptions) 5. How should the projects be financed? Analyze all other issues in the case. Case 3: Marriot Corporation 1. What is the Weighted Average Cost of Capital for Marriott Corporation? 2.…show more content…
which is about 34%); • Capital expenditures decline from 45.8% of revenues in 1995 to 10.8% of revenues by 2001 (again, close to Microsoft 's experience); • Depreciation is held constant at 5.5% of revenues; • Changes in net working capital of essentially zero; • Long-term steady-state growth of 4% annually after 2005; and • A long-term riskless interest rate of 6.71%. Given these assumptions, and starting from its current sales base of $16.625 million, how fast must Netscape grow on an annual basis over the next ten years to justify a $28 share value? 3. As an executive of Netscape, what would you recommend with respect to the proposed offering price? As an investor in Netscape, what would you recommend? As the manager of an institutional fund who was willing to buy and hold Netscape 's stock at the originally proposed price of $14 per share, would you be willing to buy and hold at an initial offering price of $28 per share? Case 9: Tiffany & Co. 1. Review Tiffany’s operations since the LBO. How attractive does the company look compared to other retailing operations? 2. As the lead manager of the underwriting syndicate, how far would you be willing to go in accommodating Tiffany’s pricing preferences? 3. As Tiffany’s top management, what is the highest gross spread you would be willing to settle for? 4. As the lead investment bank’s syndicate manager, what ‘short position’, if any, would you build into your offering

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