case questions
H.J. Heinz: Estimating the cost of capital in uncertain times
1. What is WACC? What is its purpose?
2. What were the yields on the two representative outstanding Heinz-debt issues as of the end of April 2010? What were they one year earlier?
3. What was the WACC for Heinz at the start of fiscal year 2010? What was the WACC one year earlier?
Should you consider short-term debt?
How reasonable are your interest rates for the firm? For the WACC?
What is the market risk premium?
What is Beta? How is it typically estimated? What is a drawback of this?
How is the cost of debt estimated?
Should you use book or market value weights? If you want market value of debt use (BV/100) * Price
Should you use marginal or average tax rates? Why?
How do the 2009 and 2010 WACCs compare? Why are they similar?
4. What is your best estimate of the WACC for Kraft, Campbell, and Del Monte? How do these WACC influence your thinking about the WACC for Heinz?
American Greetings Case
1.The shares of American Greetings are currently trading at an EBITDA multiple that is at the bottom of its peer group. Do you think a 3.5-times multiple is appropriate for
American Greetings? If not, what multiple of EBITDA do you think is justified? What is the implied share price that corresponds to that multiple?
2. Please model cash flows for American Greetings for fiscal years 2012 through 2015 based on the two sets of ratios in case Exhibit 8. Based on the discounted cash flows associated with the forecast, what is the implied enterprise value of American Greetings and the corresponding share price?
3. What are the key drivers of value in your model?
4. What do you believe to be the value of American Greetings shares? Do you recommend repurchasing shares?
California Pizza Kitchen
What is the environment at CPK? What decisions does Susan Collyns face? What are the four explicitly considered alternatives?
How does debt add value to CPK?
Based on the analysis in case Exhibit 9, what is the anticipated
1. What is WACC? What is its purpose?
2. What were the yields on the two representative outstanding Heinz-debt issues as of the end of April 2010? What were they one year earlier?
3. What was the WACC for Heinz at the start of fiscal year 2010? What was the WACC one year earlier?
Should you consider short-term debt?
How reasonable are your interest rates for the firm? For the WACC?
What is the market risk premium?
What is Beta? How is it typically estimated? What is a drawback of this?
How is the cost of debt estimated?
Should you use book or market value weights? If you want market value of debt use (BV/100) * Price
Should you use marginal or average tax rates? Why?
How do the 2009 and 2010 WACCs compare? Why are they similar?
4. What is your best estimate of the WACC for Kraft, Campbell, and Del Monte? How do these WACC influence your thinking about the WACC for Heinz?
American Greetings Case
1.The shares of American Greetings are currently trading at an EBITDA multiple that is at the bottom of its peer group. Do you think a 3.5-times multiple is appropriate for
American Greetings? If not, what multiple of EBITDA do you think is justified? What is the implied share price that corresponds to that multiple?
2. Please model cash flows for American Greetings for fiscal years 2012 through 2015 based on the two sets of ratios in case Exhibit 8. Based on the discounted cash flows associated with the forecast, what is the implied enterprise value of American Greetings and the corresponding share price?
3. What are the key drivers of value in your model?
4. What do you believe to be the value of American Greetings shares? Do you recommend repurchasing shares?
California Pizza Kitchen
What is the environment at CPK? What decisions does Susan Collyns face? What are the four explicitly considered alternatives?
How does debt add value to CPK?
Based on the analysis in case Exhibit 9, what is the anticipated