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Case questions - Fall 2011

Case 1: American Home products
(Week 7 – not final)

1. How much business risk does American Home Products face? 1. How much financial risk would AHP face at each of the proposed levels of debt in exhibit 3? 2. How much potential value, if any, can AHP create for its shareholders at each of the proposed levels of debt? 3. What capital structure would you recommend as appropriate for AHP? What are the advantages and disadvantages? 4. How might AHP implement a more aggressive capital structure policy? What are the alternative methods for leveraging up?

Case 2: Dividend policy at FPL Group
(Week 10 – not final)

1. What are the most important issues confronting FPL Group in May, 1994? 1. From FPL management’s perspective, is FPL’s current dividend ratio appropriate? What factors should be considered in determining its dividend policy? 2. Would you recommend a change in FPL’s dividend policy? If so, how would you implement the change? 3. Answer questions 2,3 from an investor’s perspective. 4. As Kate Stark, what would you recommend regarding investing in FPL’s stock – buy, sell, or hold?

Case 3: Interco (Week 13 – not final)

1. Assess Interco’s financial performance. Why is the company a target of a hostile takeover attempt? 2. As a member of Interco’s board are you persuaded by the premiums paid analysis (Exhibit 10) and the comparable transactions analysis (Exhibit 11)? Why? 3. Wasserstein, Perella & Co. established a valuation range of $68-$80 per common share for Interco. Show that this valuation range can follow from the assumptions described in the discounted cash flow analysis section of Exhibit 12. As a member of Interco’s board, which assumptions would you have...