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In early 2002, an analyst, Tom Baumann, must propose terms for leasing one of his company's advanced factory-automation systems to a major customer. From the lessor's standpoint, the challenge is simply to design an annuity stream that yields a present value equal to, or greater than, the value of the asset being leased. Certain factors, however, serve to complicate the analysis. The tax exposure and debt rating of the customer are uncertain, leaving the analyst to estimate the impact of alternative lease terms under different tax and interest-rate assumptions. Also, the customer is considering leasing competing systems from companies in Germany and Japan; these competing proposals limit Primus's flexibility in tailoring its proposal. In short, the student's task is to design lease terms that exploit the lessee's tax and interest-rate exposure within constraints set by competitive terms.

In August 2005, an investment manager of a hedge fund is considering purchasing an equity interest in a start-up biotechnology firm, Arcadian Microarray Technologies, Inc. The asking price is $40 million for a 60 percent equity interest. Managers of the firm are optimistic about the firm's future performance; the investment manager is more conservative in his expectations. He calls on the help of an analyst with her firm to fashion a counterproposal to Arcadian's management. The tasks for the student are to apply the concept of terminal value, interpret completed analyses and data, and derive implications of different terminal-value assumptions in an effort to recommend a counterproposal. Very little numerical figure-work is required of the student.

On March 1, 2001, Jessica Gallinelli, managing director of Bancroft Capital Management, heard surprising and somewhat disturbing news about the proposed bid by General Electric Company (GE) for Honeywell International Inc. Despite recent public assurances about the deal from GE's chairman and chief executive officer (CEO), John F. “Jack” Welch Jr., the antitrust regulatory authority of the European Commission (EC) announced it had initiated a review of the proposed merger. Gallinelli, whose fund owned a large stake in Honeywell, considered this major development and wondered whether Bancroft should alter its investment. Immediately, Gallinelli instructed her associate to provide background material on the merger, an assessment of the probability the merger would be approved by antitrust regulators in the U.S. and Europe, and valuation analyses to assist Gallinelli in assessing Bancroft's investment in Honeywell. She would need to decide quickly whether to hold or sell her fund's 10 million shares in Honeywell and short position of 10 million shares in GE. As a risk arbitrageur, she thought prices would respond rapidly to the EC's announcement. She remembered Jack Welch's confidence of five months earlier that this was the “cleanest deal you'll ever see,” and she wondered whether that was still the case.

In June 2004 Purinex, Inc., a pharmaceutical company with several clinically and commercially promising drugs in development, expected to secure a partnership with a major pharmaceutical company sometime in the next four to 12 months. That partnership, if secured, would enable Purinex to develop one of its leading compounds as a drug. The company, however, had no sales or earnings and only 11 months of cash on hand. The student must assess whether the company should attempt to secure financing now or wait until it consummated a partnership deal. The tasks for the student include evaluating the probabilities that collaboration with a pharmaceutical company would actually happen; determining whether the company stay above water until such occurred; and analyzing the other risks to the company under these circumstances.

The cofounder of Compass Records, a small, independent music-recording company, must decide whether to “produce and own” the next album of an up-and-coming folk musician or simply “license” her finished recording. This case presents information sufficient to build cash-flow forecasts for either investment alternative. Discounted cash flow (DCF) analysis reveals that licensing will be the more attractive alternative unless the student assesses the value of the options for follow-on albums included in the “produce-and-own” contract.

At three o'clock in the morning on September 10, 2001, Thierry Hautillac, a risk arbitrageur, learns of the final agreement between Pinault-Printemps-Redoute SA (“PPR”) and LVMH Moët Hennessy Louis Vuitton SA (“LVMH”). After a contest for control of Gucci lasting over two years, PPR has emerged as the winner. PPR and LVMH have agreed for PPR to buy about half of LVMH's stock in Gucci for $94 per share, for Gucci to pay an extraordinary dividend of $7 per share, and for PPR to give a two and a half year put option with a strike price of $101.50 to the public shareholders in Gucci. The primary task for the student in this case is to recommend a course of action for Hautillac: should he sell his 2% holding of Gucci shares when the market opens, continue to hold his shares, or buy more shares? The student must estimate the risky arbitrage returns from each of these choices. As a basis for this decision, the student must value the terms of payment and consider what the Gucci stock price will do upon the market's open. The student must determine the intrinsic value of Gucci using a DCF model as well as information on peer firms and transactions. The student must consider potential synergies between Gucci and PPR and between Gucci and LVMH. The student must assess the likelihood of a higher bid, using analysis of price changes at earlier events in the contest for clues.

Set in May 2000, these cases reflect the separate perspectives of the CEOs as they approach the negotiations of TSE International to acquire Yeats Valves. The task for the student is to complete a valuation analysis of the target and buyer, and to negotiate a price and exchange ratio with the counterparty. Each case contains a financial forecast only for that side; therefore, an important element in the negotiation is to obtain the private information of the other side, analyze it, and successfully negotiate terms of acquisition. The cases are relatively simple, and are offered as a first exercise in the valuation of the firm, and negotiation of an acquisition. They may be taught singly in usual case-discussion fashion, or combined into a joint-negotiation exercise where students are assigned parts to play. Used in a bilateral bargaining exercise, two teams of students are designated, each team representing one side of the negotiation and receiving a case designed for that team. The bargaining exercise provides a particular opportunity for joint teaching among instructors in finance, strategy, human behavior, and negotiation.

In July 2001, a new CEO joins this small manufacturer of CD-ROMs and DVDs to discover that the firm is in the midst of a financial crisis, induced by rapid growth. The CEO asks an analyst for help with five tasks: (1) review historical performance of the firm; (2) forecast financing requirements for the next two years; (3) exercise the forecasting model to identify “key driver” assumptions; (4) estimate Star River's weighted average cost of capital; and (5) analyze a proposed investment in a packaging machine. The analyst must offer insights and recommendations based on the work. The aim of the case is to exercise students’ abilities in financial forecasting and analysis and in the analysis of capital projects. Generally, the case offers a good omnibus review of foundational tools and concepts.

Set in May 2000, these cases reflect the separate perspectives of the CEOs as they approach the negotiations of TSE International to acquire Yeats Valves. The task for the student is to complete a valuation analysis of the target and buyer, and to negotiate a price and exchange ratio with the counterparty. Each case contains a financial forecast only for that side; therefore an important element in the negotiation is to obtain the private information of the other side, analyze it, and successfully negotiate terms of acquisition. The cases are relatively simple, and are offered as a first exercise in the valuation of the firm and negotiation of an acquisition. The case may be used to pursue some or all of the following teaching objectives: 1) Exercise valuation skills. 2) Exercise bargaining skills. 3) Illustrate practical concerns about mergers and acquisitions.

In early 2006, the anticipated expansion of package delivery services in China provided a great opportunity for the two package delivery giants FedEx and UPS. It was unclear which of these firms would make the most of this opportunity. An analysis of financial performance suggests that UPS is the better performer. On the other hand, the FedEx stock price performance has been far stronger. This apparent conflict highlights the fact that stock prices reflect anticipated future performance and new information. A teaching note and instructor and student spreadsheets are available.