Venkat Subramaniam, Case Discussion Questions

Case Questions for Boeing 777

The following are some questions that are intended to help you in the case analysis. The
questions will provide the structure necessary to evaluate the case. Your mini-reports should
include answers to the questions written in bold (i.e., the first two questions).

1) What are the factors that would influence Boeing’s Return on Equity? Which of
these factors are particularly relevant for Boeing?

2) What are the different divisions of Boeing and would this diversified firm structure
have an impact on how you would evaluate the Boeing 777 project choice?

3) What is Boeing’s asset beta? What about the beta that would lead to the cost of capital
that’s relevant for Boeing 777?

4) Should Boeing undertake this project?

5) How sensitive are the Boeing 777 returns to possible revenue fluctuations? What about
cost fluctuations?
 Venkat Subramaniam, Case Discussion Questions

Case Questions for Philip Morris Companies and Kraft, Inc.

The following are some questions that are intended to help you in the case analysis. The
questions will provide the structure necessary to evaluate the case. Your mini-reports should
include answers to the questions written in bold (i.e., the first three questions).

1) Is the Kraft Management effective? How is the company’s operating performance

and strategy relative to the food industry?

2) Why is Kraft a takeover target?

3) Should Philip Morris buy Kraft?

(Think about the following in your response. How did the market react to the
announcement? Are there any potential synergies from acquiring Kraft? Are there
any benefits to diversifying out of tobacco? Can Philip Morris finance the Kraft
acquisition?)

4) What does the proposed restructuring in Kraft accomplish? What is the restructuring worth
to the shareholders of Kraft (i.e., what is the value of Kraft if the restructuring goes
through)?

5) As Mr. Hamish Maxwell, Chairman and CEO of Philip Morris, what should you do next?

6) As Mr. John Richman, Chairman and CEO of Kraft, what should you do next?
 Venkat Subramaniam, Case Discussion Questions

Calaveras Vineyards

The following are some questions that are intended to help you in the case analysis. The
questions will provide the structure necessary to evaluate the case. Your mini-reports should
include answers to the questions written in bold (i.e., the first three questions).

1) What is your assessment of Calaveras Vineyards? What should Anne Clemens do?

2) Comment on the suitability of the listed “pure-play” comparable companies.

3) Does Calaveras have the assets to support the requested level of borrowing?

4) Estimate the value of Calaveras using the DCF Approach. Is the proposed purchase price
for Calaveras appropriate?

5) Estimate the value of Calaveras using market multiples.

6) Do you believe that Calaveras would be a creditworthy borrower? Justify.

7) Would you prefer to take some of the equity in this deal? Why or why not?
 Venkat Subramaniam, Case Discussion Questions

NetFlix.com, Inc.

The following are some questions that are intended to help you in the case analysis. The
questions will provide the structure necessary to evaluate the case. Your mini-reports should
include answers to the questions written in bold (i.e., the first three questions).

1) What is NetFlix’s long-run objective? How does NetFlix plan to achieve its long-
run objective?

2) How would you assess NetFlix’s performance to date?

3) Why does McCarthy use a subscriber model to forecast NetFlix’s future cash flow
requirements? What are the basic elements of a subscriber model?

4) Construct an annual subscriber model for NetFlix that can be used to forecast the
expected cash flows for a new subscriber over the next five years. What is the value of a
new NetFlix subscriber? (Assume a discount rate of 20%.). Based on your analysis,
should NetFlix be acquiring new subscribers?

5) Assuming that NetFlix does not change its current business model, what is the value of
NetFlix.com? What changes, if any, would you suggest be made to its existing business
model? What are the value implications of these changes?
 Venkat Subramaniam, Case Discussion Questions

Bumble Be Seafoods, Inc.

The following are some questions that are intended to help you in the case analysis. The
questions will provide the structure necessary to evaluate the case. Your mini-reports should
include answers to the questions written in bold (i.e., the first two questions).

1) What are the credit risks inherent in this loan, and what, if anything, mitigate those
risks? Should Bank of Boston participate in this senior-debt layer?

2) Why does this deal have such a complicated structure? Why do the mezzanine
layers exist?

3) How attractive is the deal to Bank of Boston? Including fees, what will be the Bank’s
return on assets for this loan? Is the return on assets appropriate for the risks?

4) What is the prospective return to investors who buy the package of senior subordinated
debt packaged with equity? Is this return sufficient inducement to invest? Will Castle &
Cooke be compensated fairly for its investment in the junior subordinated notes? What is
the NPV of the junior notes?

5) Given the projections, what is the economic value of the equity in Bumble Bee at the date
of closing? Is the return on equity fair? (Remember to relever the beta in determining
the discount rate for equity.)

6) What creates value in this deal?

7) Who are the big winners here? The relatively small winners?
 Venkat Subramaniam, Case Discussion Questions

The Acquisition of Consolidated Rail Corporation - (A)

The following are some questions that are intended to help you in the case analysis. The
questions will provide the structure necessary to evaluate the case. Your mini-reports should
include answers to the questions written in bold (i.e., the first two questions).

1) Why does CSX want to buy Conrail? Analyze the industry economics.

2) Why do you think CSX made a two-tiered tender offer? What are the potential
benefits for CSX? Is this offer structure implicitly coercive?

3) How much is Conrail worth? How do you value the cost savings? Is CSX paying a fair
price for Conrail?

4) Why did CSX include, and Conrail agree to, the various anti-takeover devices? What is
the economic rationale for including these devices? Who benefits and who loses from
their use?

5) As a Conrail shareholder, would you tender to CSX at $92.50 per share in the first stage
offer?
 Venkat Subramaniam, Case Discussion Questions

Flowers Industries, Inc.

The following are some questions that are intended to help you in the case analysis. The
questions will provide the structure necessary to evaluate the case. Your mini-reports should
include answers to the questions written in bold (i.e., the first two questions).

1) Why is Flowers seeking new capital? Is $50 million sufficient?

2) What are the relative merits of convertible debt compared to straight debt or
straight equity? Consider the effect on shareholders’ income, the risk that each
form of financing entails, whether the financing increases or reduces financial
flexibility, the effects on voting control, and the timing of the financing.

3) When are the investors likely to convert? When could the firm force conversion? (see
case exhibits 5 and 6).

4) What is the effect of each financing alternative on the reported earnings, ROE, and
capital structure of the firm? What would be the EPS under the three alternatives if the
EBIT were $40 million? $50 million?

5) Under the terms outlined in Exhibit 7, is the convertible fairly priced? (i.e., is the sum of
the bond portion and the option part equal to the par value?)

6) Should Marty Wood go forward with the convertible issue?

 Venkat Subramaniam, Case Discussion Questions

Humana, Inc. - Managing in a Changing Industry

The following are some questions that are intended to help you in the case analysis. The
questions will provide the structure necessary to evaluate the case. Your mini-reports should
include answers to the questions written in bold (i.e., the first two questions).

1) How is Humana’s business doing? How is their recent performance compared to

that of the industry? Do you think Humana’s problems are serious enough to
warrant some form of restructuring?

2) Why would Humana benefit from engaging in a spin-off? Explain.

3) How much value do you estimate the spin-off would create for Humana? What are the
sources of this additional value, and how should the spin-off be structured for Humana to
realize maximum benefits from the restructuring?

4) Why has an integrated strategy apparently worked for Kaiser Permanente but not worked
for Humana?

5) Do any of the other options considered by management represent a more sensible

solution to Humana’s problems than the spin-off?