These questions are intended to get you started on your analysis and to focus your attention on a few critical points. They are not necessarily the final goal of your analysis.
1. TYPO: The two quarterly figures, $230,187 and $174,673, listed as “General and admin” in Exhibit 1 should be listed as “Total operating expenses”. 2. NOTE: Exhibit 6 presents common-sized financials for the industry, not Oracle systems. 3. On a scale of 1 to 100, rate the financial health of Oracle Systems in 1989 and in 1990—justify your rating. 4. What might explain the stock price drop that occurred in 1990 and how does that influence your evaluation of Oracle Systems’ financial health? Wilson Lumber:
1. Why does Mr. Wilson have to borrow so much money to support this profitable business? 2. Do you agree with his estimate of the company’s loan requirements? How much will he need to worry to finance his expected expansion in sales (assume 1991 sales volume of $3.6 million)? 3. As Mr. Wilson's financial advisor, would you urge him to go ahead with, or to reconsider his anticipated expansion? As the banker, would you approve Mr. Wilson's loan request and if so, any restrictions? O.M. Scott & Sons:
1. Who was Scott able to achieve its rapid growth from a local to a national company? What were the key factors in its success? 2. How have the prices of Scott shares moved in the market?
3. Analyze the company’s financial condition at the end of 1961. What are its prospects for future years? 4. Project specific sales and profit figures for Scott for 1962 and 1963. 5. What action, if any, should Scott take in relation to its internal operations? Or its creditors? The Super Project:
1. What are the relevant cash flows for General Foods to use in evaluating the Super Project? In particular, how should management deal with issues such as a) Test-market expenses?
b) Overhead Expenses?
c) Erosion of Jell-O contribution margin?
d) Allocation of charges for the use of excess agglomerator capacity? 2. How attractive is the investment as measured by various capital budgeting techniques (i.e., payback period, internal rate of return, net present value)? How useful is each of these measures of investment attractiveness? Assume a WACC of 10%, and note that the effective tax rate is about 52%. 3. How attractive is the Super project in strategic and competitive terms? What potential risks and benefits does General Foods incur by either accepting or rejecting the project? 4. Should General Foods proceed with the Super project? Why or why not? (I want you to be definitive, i.e., if you were the CEO, would you approve this project or not?) Assumptions:
Assume that all fixed assets are depreciated straight-line to zero over the 10-year life of the project. Moreover, assume that General Foods has not accounted for any depreciation expense in the profit analysis given. Bowing 777
1. What is an appropriate required rate of return against which to evaluate the prospective IRRs from the Boeing 777? a. Which beta did you use? Why?
b. When you used the capital asset pricing model (CAPM), which risk premium and risk-free rate did you use? Why? c. Which capital-structure weights did you use? Why?
2. Judged against your WACC, how attractive is the Boeing777 project? a. Under what circumstances is this project economically attractive? b. What does a sensitively analysis (either the analysis presented in the case or another that you have done on your won) reveal about the nature of Boeing’s gamble on the 777? 3. Should Boeing have launched the 777 in October 1990?
1. Is the acquisition of Royal's linerboard mill and box plants a sound strategic move? 2. What basis, if any, is there for expecting Atlantic-Royal's combined linerboard and box mill operations to do better/worse than the industry overall? 3. What prices should Atlantic Corp. be willing...
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