This page contains four types of course materials, mostly created for Professor Mihir Desai's course, International Financial Management, at Harvard Business School: International Finance: A Casebook, which serializes all the case studies written for the IFM course; “International Finance: A Course Overview Note," which gives instructors an extensive overview of the main themes, lessons, goals, and teaching tools for the IFM course; a series of seven module notes which describe in depth the pedagogical objectives of each of the seven modules that comprise the IFM course (a module addresses topics like "Exchange Rates and Firms" and "Finance in Weak Institutional Environments" over several lessons); and finally the case studies and Teaching Notes themselves. In this final section, cases written for the IFM course are presented first, followed by cases written on other topics.
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Desai, Mihir A., International Finance: A Casebook (John Wiley & Sons, February 2006). For academic and practitioner reviews, click on image of back cover above. (Instructors: request a review copy here.)
COURSE OVERVIEW NOTE
Desai, Mihir A. “International Finance: A Course Overview Note." Harvard Business School Teaching Note 5-206-107. (This note is also available on the HBSP webpage.)
Describes the International Finance course at Harvard Business School, which argues that the forces of globalization have fundamentally changed the scope and activities of firms, thereby altering the practice of finance within these firms. As a consequence of an increasing reliance on tightly integrated foreign operations, a parallel world of finance has opened within every multinational firm, heretofore overlooked. Addresses the many aspects of financial decision making within global firms prompted by these changes. Briefly explains the overall structure of the course, introducing the seven course modules and the rationale for the structure of the course. Outlines an analytical framework to guide critical financial decisions on financing, investment, risk management, and incentive management within a multinational firm. This framework emphasizes the need to reconcile conflicting forces for multinational firms to gain a competitive advantage from their internal capital markets. Concludes with a discussion of the course's pedagogical approach and detailed descriptions of course materials, including 19 case studies, corresponding teaching notes, module notes, and supplementary materials.
Desai, Mihir A. “Exchange Rates and Global Markets: A Module Note.” Harvard Business School Teaching Note 5-206-122.CASE STUDIES AND TEACHING NOTES - CASES ON INTERNATIONAL FINANCIAL MANAGEMENT
Desai, Mihir A. “Exchange Rates and Firms: A Module Note.” Harvard Business School Teaching Note 5-206-123.
Desai, Mihir A. “Financing Decisions within the Firm: A Module Note.” Harvard Business School Teaching Note 5-206-124.
Desai, Mihir A. “Valuing Cross-Border Investments: A Module Note.” Harvard Business School Teaching Note 5-206-125.
Desai, Mihir A. “Cross-Border Financial Opportunities: A Module Note.” Harvard Business School Teaching Note 5-206-126.
Desai, Mihir A. “Finance in Weak Institutional Environments: A Module Note.” Harvard Business School Teaching Note 5-206-127.
Desai, Mihir A. “International Regulatory Regimes: A Module Note.” Harvard Business School Teaching Note 5-206-128.
Desai, Mihir A. and Christina B. Pham. "Foreign Exchange Markets and Transactions." Harvard Business School Note 9-205-016.
Desai, Mihir A., Christina B. Pham and Kathleen Luchs. "Foreign Exchange Markets and Transactions: Solutions to Exercises." Harvard Business School Case Supplement 205-017.
Desai, Mihir A. "Foreign Exchange Markets and Transactions." Harvard Business School Teaching Note 206-032
(Courseware is available for this case.)The note provides information on the foreign exchange market and describes the different types of foreign exchange transactions, including spot transactions, forwards, swaps, futures, and options. Worked examples are included to help students understand the different instruments and there is an appendix with additional exercises.Desai, Mihir A. and Mark F. Veblen. "Exchange Rate Policy at the Monetary Authority of Singapore." Harvard Business School Case 204-037.
Desai, Mihir A. "Exchange Rate Policy at the Monetary Authority of Singapore." Harvard Business School Teaching Note 206-029.The Monetary Authority of Singapore (MAS) is responsible for the country's monetary policy, and its decisions are intended to support the country's overall strategy for sustainable economic growth with price stability. MAS has been very successful in managing exchange rates using a managed float system, which allows more flexibility than a fixed exchange rate but less volatility than freely floating exchange rates. Following the Asian Financial Crisis, Dr. Khor Hoe Ee and his colleagues must decide whether to continue to manage exchange rates through the managed float, or if alternative monetary policies would be more effective in supporting Singapore's economic goals.Desai, Mihir A., Kathleen Luchs and Mark Veblen. "Innocents Abroad: Currencies and International Stock Returns." Harvard Business School Case 204-141.
Desai, Mihir A. "Innocents Abroad: Currencies and International Stock Returns." Harvard Business School Teaching Note 206-012.
(Courseware is available for this case.)What do international stocks contribute to the portfolio of a U.S. investor? How do currencies interact with stock prices movements in determining the benefits of international diversification. The case allows students to compare the risks and returns of foreign stock markets with each other and with the U.S. stock market, and to examine the risks and returns of international diversification. Students are forced to calculate returns, adjust for currencies, derive correlations and map efficient frontiers based on raw data.Desai, Mihir A., Vincent Dessain, and Anders Sjöman. "Hedging Currency Risks at AIFS." Harvard Business School Case 205-026.
Desai, Mihir A. "Hedging Currency Risks at AIFS." Harvard Business School Teaching Note 206-025.
(Courseware is available for this case.)The hedging activities of AIFS are reviewed by the company's controllers. AIFS organizes study abroad programs and cultural exchanges for American students. The firm's revenues are mainly in U.S. dollars but most of its costs are in Euros and British Pounds. AIFS has a hedging policy but the controllers want to review the percentage of exposure that is covered and the use of forward contracts and options. AIFS sets guaranteed prices for its exchanges and tours a year in advance, before its final sales figures are known. The controllers need to ensure that the company adequately hedges its foreign exchange exposure and achieves an appropriate balance between forward contracts and currency options.Desai, Mihir A. and Mark F. Veblen. "Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures." Harvard Business School Case 205-095.
Desai, Mihir A. and Kathleen Luchs. "Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures." Harvard Business School Teaching Note 206-031.
(Courseware is available for this case.)How should a multinational firm manage foreign exchange exposures? Examines transactional and translational exposures and alternative responses to these exposures by analyzing two specific hedging decisions by General Motors. Describes General Motors' corporate hedging policies, its risk management structure, and how accounting rules impact hedging decisions. Although the overall corporate hedging policy provides a consistent approach to the foreign exchange risks that General Motors must manage, the company also has to consider deviations from prescribed policies. Describes two such situations: a significant exposure to the Canadian dollar with adverse accounting consequences and GM's exposure to the Argentinean currency when devaluation is widely anticipated. Students must evaluate the risks General Motors faces in each situation and consider which hedging strategy--if any--might be appropriate. Additionally, asks students to analyze the financial costs and accounting treatment of alternative transactions for hedging purposes. A rewritten version of an earlier case.Desai, Mihir A. and Mark F. Veblen. " Foreign Exchange Hedging Strategies at General Motors: Competitive Exposures." Harvard Business School Case 205-096.
Desai, Mihir A. and Kathleen Luchs. "Foreign Exchange Hedging Strategies at General Motors: Competitive Exposures." Harvard Business School Teaching Note 206-032.
(Courseware is available for this case.)How can a multinational firm analyze and manage currency risks that arise from competitive exposures? General Motors has a substantial competitive exposure to the Japanese yen. Although the risks GM faces from the depreciating yen are widely acknowledged, the company's corporate hedging policy does not provide any guidelines on managing such competitive exposures. Eric Feldstein, treasurer and vice-president of finance, has to quantify GM's yen exposure and recommend a way for GM to manage the risks that arise from its competitive exposure. Students must analyze the impact of a yen depreciation on GM sales and profits. A rewritten version of an earlier case.Desai, Mihir A. and Mark F. Veblen. "The Refinancing of Shanghai General Motors (A)." Harvard Business School Case 204-031.
Desai, Mihir A. and Mark F. Veblen. "The Refinancing of Shanghai General Motors (B)."Harvard Business School Case 204-025.
Desai, Mihir A. and Mark F. Veblen. "The Refinancing of Shanghai General Motors (A) (B)." Harvard Business School Teaching Note 206-034.
(Courseware is available for this case.)The CFO of General Motors’ joint venture in Shanghai, SGM, wants to refinance almost $900 million of project finance it raised to begin operations. The highest priority is improving the terms of the financing with regard to costs and specific covenants. Several factors complicate the CFO’s objective including the presence of capital controls, the impending entry of China into the World Trade Organization, the joint venture partner's captive finance subsidiary, and the conflicting goals of the joint venture partners. The case illustrates how subsidiary financial decisions must trade off entity level and parent level concerns. The case also illustrates how multinational financial decision making - including transfer pricing, repatriation, and funding decisions - must be designed to accomodate governance concerns, financial objectives and the potentially divergent interests of joint venture partners.Desai, Mihir A., James R. Hines Jr. and Mark F. Veblen. " Corporate Inversions: Stanley Works and the Lure of Tax Havens ." Harvard Business School Case 203-008.
Desai, Mihir A. "Corporate Inversions: Stanley Works and the Lure of Tax Havens." Harvard Business School Teaching Note 206-013.
(Courseware is available for this case.)In response to Stanley Work's announcement that it is moving to Bermuda--and the associated jump in market value--a major competitor sets out to determine how the market is valuing the consequences of moving to a tax haven and whether his company should invert to a tax haven. In particular, the competitor's CFO needs to attribute Stanley's stock price movements across several dimensions of potential tax savings (tax savings on foreign operations and on interest payments) to see whether maybe there isn't something else at play (earnings stripping.) In the process, the mechanics and incentives created by the international tax regime are illustrated. Teaching Purpose: Familiarizes students with the ways in which the U.S. tax code alters managers' incentives by examining the U.S. tax treatment of foreign income. Further demonstrates that the fundamental difference between the manner in which the U.S. taxes its companies--worldwide income taxation--differs from how many other nations tax their companies--territorial taxation--and provides a context in which to understand the foreign tax credit system. Forces students to explain the stock market reaction to an inversion announcement through detailed examination of financial statements. Aggregating the separate components of value turns up short, and students are forced to speculate as to where Stanley can generate more value.Desai, Mihir A., Paolo Notamicola, and Mark F. Veblen. "Valuing a Cross-Border LBO: Bidding on the Yell Group." Harvard Business School Case 204-033.
Desai, Mihir A. "Valuing a Cross-Border LBO: Bidding on the Yell Group." Harvard Business School Teaching Note 206-038.
(Courseware is available for this case.)A team of private equity investors must value the leveraged buyout of a yellow-pages business that operates in both the U.S. and the U.K. In the process, they must wrestle with issues of how to conduct cross-border valuations and how to value a stable cash-cow business along with a growth business. In addition, the economics and incentives of carried interest are explicitly analyzed and a comparison amongst different valuation methods - CCF and FCF - are illustrated.Desai, Mihir A. and Doug Schillinger. "Globalizing the Cost of Capital and Capital Budgeting at AES." Harvard Business School Case 204-109.
Desai, Mihir A. "Globalizing the Cost of Capital and Capital Budgeting at AES." Harvard Business School Teaching Note 206-080.
(Courseware is available for this case.)AES Corporation, with electricity generating businesses around the world, is seeking a methodology for calculating the cost of capital for its various businesses and potential projects. In the past, AES used the same cost of capital for all of its capital budgeting, but the company's international expansion has raised questions about this approach, and whether a single cost of capital adequately accounts for the different risks AES faces in its diverse businesses. The company recently suffered heavy losses from currency devaluations in South America, and also from regulatory changes in other countries. The director of the corporate planning group is developing a methodology for taking account of different country and project risks, and the case allows students to use this methodology to calculate the cost of capital for fifteen different projects around the world. The case allows students to consider how a global firm can account for differing risks in its international operations.Desai, Mihir A., Alexandra de Royere, Mark Veblen and Kathleen Luchs. "Dow Chemical's Potential Bid for the Privatization of PBB in Argentina." Harvard Business School Case 203-044.
Desai, Mihir A. "Dow Chemical's Potential Bid for the Privatization of PBB in Argentina." Harvard Business School Teaching Note 206-040.
(Courseware is available for this case.)What price should Dow Chemical bid for PBB, a petrochemical complex that is being privatized by the Argentine government? In order to answer this question, students are forced to consider the role of country risk, the underlying currency exposure of the business, and how to value an investment opportunity that has several stages. Given that it is a privatization, students are also forced to consider the political dynamics involved, the incentives of local managers and the bidding process of a privatization. Detailed cash flows and discount rate information are provided allowing students to conduct a thorough valuation for an emerging markets project.Desai, Mihir A., Ricardo Reisen de Pinho, Mark Veblen and Kathleen Luchs. "Drilling South: Petrobras Evaluates Pecom." Harvard Business School Case 204-043.
Desai, Mihir A., "Drilling South: Petrobras Evaluates Pecom." Harvard Business School Teaching Note 5-206-134.
(Courseware is available for this case.)The Brazilian oil company, Petrobras, is evaluating the acquisition of an Argentine oil company, the Perez Companc Group (Pecom). The acquisition would increase Petrobras' oil reserves and expand its interests outside Brazil, a significant step for the largest company in Brazil. Pecom is for sale because it has been severely affected by the financial crisis in Argentina and students have the opportunity to assess the impact of a severe devaluation on a company. There is also considerable uncertainty about how to value Pecom, and students have to weigh the importance of country risk in determining the appropriate discount rate to use in the valuation. Finally, there is also uncertainty about Petrobras' own future as Petrobras has been controlled by the Brazilian government. Students are allowed to review the efficacy of changes in corporate governance implemented by Petrobras despite its ongoing link to the Brazilian state and the associated political uncertainties of that affiliation. The case allows students to consider different methods of valuation and the impact of politics on cross-border acquisitions.Desai, Mihir A., Vincent Dessain and Anders Sjöman. "Nestlé and Alcon—the Value of A Listing." Harvard Business School Case 205-056.
Desai, Mihir A., "Nestlé and Alcon—the Value of A Listing." Harvard Business School Teaching Note 5-206-135.
(Courseware is available for this case.)In response to a perceived undervaluation by the capital markets, Nestlé is considering divesting a part of its opthamology subsidiary, Alcon, and must decide on a listing location. In the process, students are challenged to wrestle with the valuation of a conglomerate, the tradeoffs involved in listing in the U.S. vs. Europe, and the incentive and tax consequences of that listing decision.Desai, Mihir A., Kathleen Luchs, Mark F. Veblen, Ami Dave, and Maria Raga-Frances. "Cross-Border Listings and Depositary Receipts." Harvard Business School Note 9-204-022.Describes the varied instruments that have evolved to facilitate investments in foreign corporations, emphasizing American Depositary Receipts (ADRs) and cross-border listings. Describes the different types of ADRs and the regulatory requirements foreign corporations must meet to list their shares on U.S. stock exchanges. Examines the evolution of cross-border listings as well as recent developments, such as Globally Registered Shares. Reviews the academic research on the motivations for cross-border listings and provides information on managerial views on the advantages and disadvantages of cross-border listings. Teaching Purpose: To provide information on the different types of cross-border listings and depositary receipts as well as review the reasons corporations list their shares on foreign stock exchanges.Desai, Mihir A., Masako Egawa, and Yanjun Wang. "The Continuing Transformation of Asahi Glass: Implementing EVA." Harvard Business School Case 205-030.
Desai, Mihir A., Francisco Ferri and Steven Treadwell. "Understanding Economic Value Added." Harvard Business School Note 206-016.
Desai, Mihir A., "The Continuing Transformation of Asahi Glass: Implementing EVA." Harvard Business School Teaching Note 206-094
(Courseware is available for this case.)The case explores the use of an EVA (economic value added) methodology at Asahi Glass. EVA is among the changes initiated by the CEO aimed at transforming Asashi Glass from a traditional Japanese company to a global firm. Other changes included a corporate reorganization into world-wide business groups, the appointment of non-Japanese managers to key positions, and corporate governance reforms. The EVA methodology was introduced to improve resource allocation across Asahi's numerous businesses around the world and to evaluate the managerial performance of top executives. The case examines how the company calculated EVA and in particular how it calculated the weighted average cost of capital (WACC) for its different businesses in different countries. Is Asahi Glass gaining benefits from the EVA methodology and does it contribute to the transformation of Asahi Glass into a truly internatonal firm?Desai, Mihir A., Gabriel J. Loeb and Mark F. Veblen. "Tax-Motivated Film Financing at Rexford Studios." Harvard Business School Case 203-005.
Desai, Mihir A. "Tax-Motivated Film Financing at Rexford Studios." Harvard Business School Teaching Note 206-011.
(Courseware is available for this case.)The head of production for Rexford Studios must analyze the terms and value consequences of an international financing involving a German film fund. The financing involves a sale-leaseback structure where international tax rules give rise to a sizable economic pie that is being divided up between the fund investors, the studio, and the arrangers. To conduct the negotiation, the producer must value the cash flow streams to each of the parties and recognize the nature of the tax arbitrage in the context of his overall financing needs. As a consequence, the major issues involved in film financing and the nature of sale-leaseback transactions driven by tax considerations are explored, as is the competition between countries for film production. Finally, the underlying determinants of opportunities created by international tax rules are valued. Teaching Purpose: Allows students to value cash flows generated by a tax arbitrage in the context of an international film financing while giving students the opportunity to understand the various film financing options available.Desai, Mihir A., Gabriel J. Loeb and Mark F. Veblen. "The Strategy and Sources of Motion Picture Finance." Harvard Business School Note 203-007.Considers the alternative financing mechanisms for film financing, the evolution of film finance in the United States, and the nature of tax-motivated film financing in the United States and around the world. Develops the strategy driving motion picture finance and the various instruments that advance that strategy. Considers aggregate trends in those financing patterns, paying special attention to tax-driven financing strategies. Concludes with an evaluation of the international market in fiscal incentives for motion picture finance. Teaching Purpose: To introduce students to the strategy of motion picture finance and to develop an understanding of the financing alternatives. To focus on the international competition for the motion picture industry through fiscal instruments.
Desai, Mihir A. and Mark F. Veblen. "Growing Up In China: The Financing of BabyCare." Harvard Business School Case 204-029.
Desai, Mihir A. "Growing Up In China: The Financing of BabyCare." Harvard Business School Teaching Note 206-083.
(Courseware is available for this case.)This case explores the dynamics of venture capital and entrepreneurial finance in China and provides a rigorous valuation exercise. The CFO of this infant nutritional products company must choose among competing financing offers. The interplay of Chinese legal and customs restrictions and venture capitalists' bargaining techniques challenge the CFO to navigate a tricky negotiation and to devise a unique business model given these constraints. Underpinning the case is a valuation exercise involving a subscriber model of the business that allows students to test core business assumptions and assess the temporal distribution of funding needs and how milestones affect the choice of which term sheet to accept. It also highlights some of the difficult questions a discerning venture capitalist might ask, requiring the CFO to justify his overall busines model and working-capital needs.Desai, Mihir A., Robin Greenwood and Lucy White. "Subscriber Models." Harvard Business School Note 205-061.Introduces the subscriber model as an alternative valuation framework for firms whose revenues can be traced to repeated transactions with customers.Desai, Mihir A., Alberto Moel and Kathleen Luchs. "Czech Mate: CME and Vladimir Zelezny (A), (B1), (B2), (B3), (C), (D), (E)." Harvard Business School Case 204-118.
Desai, Mihir A. "Czech Mate: CME and Vladimir Zelezny (A)-(E)." Harvard Business School Teaching Note 205-026.
(Courseware is available for this case.)The (A) case examines how insiders can expropriate value from shareholders in emerging markets when property rights are ill-defined. As such, it provides a platform for considering how institutions and legal rules impact financing patterns and economic outcomes. CME, controlled by the former U.S. Ambassador to Austria, Ronald Lauder, and its Czech partners win the bidding for the first private broadcast frequency with national coverage in the Czech Republic in 1993. After the entity succeeds dramatically, the primary Czech partner wants to sell his share in the operating company. CME must decide whether or not to buy the stake and at what price. Subsequent cases (B1, B2, B3, C, and D) include a negotiation between CME and the Czech partner where it becomes clear that the Czech partner is able to expropriate even more value from CME despite the fact that he no longer owns any shares in the entity.Desai, Mihir A., Belen Villalonga, and Mark Veblen. "Antitrust Regulations in a Global Setting: The EU Investigation of the GE/Honeywell Merger." Harvard Business School Case 204-081.
Desai, Mihir A. and Belen Villalonga. "Antitrust Regulations in a Global Setting: The EU Investigation of the GE/Honeywell Merger." Harvard Business School Teaching Note 205-094.
This case is designed to help students understand the principles underlying competition and antitrust policy in the context of the proposed GE-Honeywell merger. The U.S. Department of Justice has already approved the transaction and it is being considered by the European Commission. The Competition Commissioner, Mario Monti, must analyze the economic consequences of the proposed merger and evaluate how it will affect competitors, customers, and product markets. He must address key policy choices such as how to define these product markets, how to measure market power, and ultimately, what set of structural and behavioral remedies he should demand from GE as a condition for approving the merger. In understanding the nuances of the transaction, students identify different sources of value and must confront the question of whether the efficiencies generated enhance social welfare in the long run. The decision of whether to approve the merger, and on what terms provides students with insights into the complexities of operating under multiple regulatory regimes.Desai, Mihir A., Julia D. Stevens, Kathleen Luchs, and Christina B. Pham. "Redesigning Sovereign Debt Restructuring Mechanisms." Harvard Business School Case 204-110.
Desai, Mihir A., " Redesigning Sovereign Debt Restructuring Mechanisms." Harvard Business School Teaching Note 206-096.How should the debt of sovereign countries be restructured when countries approach default? Anne O. Krueger of the International Monetary Fund is proposing a new approach to sovereign defaults, the Sovereign Debt Restructuring Mechanism (SDRM). The SDRM would create a new international legal framework for sovereign defaults, similar to bankruptcy proceedings in the private sector. The SDRM would be overseen by a new judicial group within the IMF and implemented through international treaties. Krueger has to construct a convincing case that the SDRM would be more effective than alternate approaches to sovereign defaults. The case provides information on some major sovereign defaults (the crises in Latin America, Mexico, and Asia), and on the existing institutions and processes that creditors and debtors turn to in sovereign defaults. The case allows the students to weigh the advantages and disadvantages of different approaches to sovereign defaults.
CASE STUDIES AND TEACHING NOTES - OTHER CASES
Desai, Mihir A. and Julia D. Stevens. "Financing Biodiversity Conservation by the Global Conservation Fund." Harvard Business School Case 204-019.The Global Conservation Fund is an international nonprofit organization with a $100 million endowment and an exclusive focus on land preservation. The Fund and its Director must decide which projects to fund over the next year, and what financing mechanisms to use. The case describes the Fund's efforts to develop a rating system for projects, and various financing options used by conservation organizations, including debt-for-nature swaps, carbon credits, and conservation trust funds.Desai, Mihir A., Frank Williamson and Mark Veblen. " Provident Life and Accident Insurance: The Acquistion of Paul Revere ." Harvard Business School Case 202-044.
Desai, Mihir A., Frank Williamson and Mark Veblen. "Provident Life and Accident Insurance: The Acquistion of Paul Revere." Harvard Business School Teaching Note 202-046.Provident Life & Accident Insurance Co. has made an initial bid to acquire a primary competitor, Paul Revere, from conglomerate, Textron. The due diligence process uncovers a significant block of problematic disability insurance policies. Provident is forced to assess the negative impact of this discovery on its initial valuation and revise its bid. In the process, the divergent views of the evolution of these policies by the bidder and seller have to be translated through discounted cash flow analysis into appropriate bid prices. Finally, this DCF analysis, in combination with multiples analysis, is used in negotiations with Textron and public shareholders. Teaching Purpose: Provides a platform for: 1) introducing students to the insurance industry by examining how insurers pool risks, incorporate asymmetric information in pricing and designing their policies, manage these risks by investing assets over time, and how this industry reports financial results to investors; 2) demonstrating discounted cash flow analysis and multiples analysis in the insurance industry; and 3) discussing negotiation dynamics in an M&A situation involving a large majority shareholder and a minority public float and divergent views of future expected cash flows.Desai, Mihir A. and Kathleen Luchs. " Valuing Project Achieve ." Harvard Business School Case 201-080.
Desai, Mihir A. and Kathleen Luchs. "Valuing Project Achieve." Harvard Business School Teaching Note 201-130.Project Achieve is a start-up providing information management solutions for schools. Its founders see a need for software both to manage the volumes of information necessary to administer a school and to connect parents, teachers, and students in a more effective way. Originally funded by angel investors, Project Achieve is raising its first formal round of financing and needs to establish a firm valuation. This case outlines the economics of the business and provides the necessary background figures to build the business model and arrive at a valuation. Explores quantitative considerations of venture financing: 1) value neutrality of equity issuance is illustrated; 2) cost of capital is computed from raw return series, and the appropriate discount rate is selected based on comparables; 3) decision trees are used to highlight the importance of probabilistic thinking; and (4) subscriber models are compared with annual free cash flow models both for determining financial value and as decision-making tools for business choices. In addition, provides a setting to discuss the more qualitative issues involved in choosing investors. In particular, the founders are comparing two options: an infusion of additional capital from current and new investors or an investment from a potential strategic partner. Each option has very different implications for the direction of the business going forward.Desai, Mihir A. and Peter Tufano. " Laura Martin: Real Options and the Cable Industry ." Harvard Business School Case 201-004.
Desai, Mihir A. "Laura Martin: Real Options and the Cable Industry." Harvard Business School Teaching Note 201-122.CSFB equity research analyst Laura Martin publishes a report on valuing Cox Communications that introduces an innovative approach to valuation. She contends that EBITDA multiple analysis, typical for the cable industry, is flawed because it overlooks the value of the "stealth tier" (unused capacity on cable companies' fiber optic network). Martin proposes using real options valuation to impute value to the stealth tier, and she thereby arrives at a higher valuation for Cox stock. This provides the context for contrasting several valuation methodologies--traditional DCF analysis, regression-based ROIC and multiple analysis, and real option theory--and assessing how selected assumptions impact the various valuation techniques. In particular, Martin reviews ways in which the industry is evolving and students can think about how these changes impact which valuation method is most appropriate. More generally, this case provides a context for discussing the role of equity research analysts, highlighting all the constituencies they serve and how this can create conflicts of interest. Martin's application of real options theory provides an opportunity to evaluate where it works, where it doesn't, and why.Desai, Mihir A. " The Financing of Project Achieve (A) ." Harvard Business School Case 200-042.
Desai, Mihir A. " The Financing of Project Achieve (B) ." Harvard Business School Case 200-053.An entrepreneur is forced to analyze the tradeoffs between different equity providers through a detailed analysis of venture financing terms and cash flow forecasts. The founder of a web-based IMS for schools must negotiate a term sheet, determine funding needs, value her company, and finalize a venture deal. Teaching Purpose: Develops the tradeoffs between different equity providers through detailed analysis of venture financing terms and cash flow forecasts.Palepu, Krishna G., V. Kasturi Rangan, Ahu Bhasin, Mihir Desai, and Sarayu Srinivasan. " Enron Development Corporation: The Dabhol Power Project in Maharashtra, India (A) ." Harvard Business School Case 596-099.A large, lucrative power plant is negotiated for construction/operation by an American power company in India's evolving privatized power sector. The process of incorporating the project is captured in this case. The American company will own and operate the plant in India, which will sell power to India. Teaching Purpose: Entering an emerging market in an industry currently in the process of being privatized; how to handle extra-cultural negotiations; anticipating future development.Mason, Scott P. and Mihir A. Desai. " Coca-Cola Harmless Warrants ." Harvard Business School Case 295-007.
Mason, Scott P. and Mihir A. Desai. "Coca-Cola Harmless Warrants." Harvard Business School Teaching Note 295-099.Underscores the arbitrage implicit in the pricing of a complex unit of debt and warrants issued by the Coca-Cola Co.Mason, Scott P. and Mihir A. Desai. " Cougars ." Harvard Business School Case 295-006.Provides an introduction to zero coupon bonds and stripping coupon bonds. Concerns the relationship between the spot curve, the strip curve, and the coupon curve.
Mihir A. Desai
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