Suggested Format for Case Analyses:
1. Executive Summary: brief 1 paragraph stating key problem(s) and your main
recommendation(s)/decision(s).
2. Problem Identification: 1-2 page write-up of the key problem(s) you have identified
within the case. This should not be a re-hash of the case itself. The Case Study questions
should help you address the issues in this section.
3. Action Plan: 1-2 page write-up of your proposed solution to the problem(s) with
detailed steps as to how to proceed with implementing your proposal.
4. Financial Analysis: 1-2 page write-up of the financial analysis that supports the
recommendation(s) you have presented in the Executive Summary and Action Plan. Use
an electronic spreadsheet to do the calculations and print out these figures as an
attachment to your case analysis.
Case Study Questions:
Assignment #1 Tiffany & Co.—1993:
1. Should Tiffany actively manage its yen-dollar exchange rate risk? Why or why
not?
2. If Tiffany were to manage its exchange rate risk activity, then what should be the
objectives of such a program (e.g., what specific purpose or theoretical rationale
can justify a decision to hedge the yen-dollar risk)?
3. Assuming Tiffany wanted to hedge this risk, try to identify what exposures should
be managed via such a hedging program (e.g., hedge sales, net income, cash flow,
etc.). Also, try to quantify how much of these exposures should be covered and
for how long.
4. Identify, in terms of cost, benefits, and risk, the relative advantage / disadvantage
of the following three hedging strategies: a) do nothing, b) hedge with forward or
futures contracts, and c) hedge with option contracts.
Assignment #2 Manufactured Homes (MANH):
Note: Prof. Robert West will be discussing this case on June 8 and he has provided the
following ‘starter’ questions for you to address in your group-based write-up which is
due at the beginning of class on June 8.
1. Identify the accounting policies of MANH which have the most significant impact on the
company’s financial statements. What are the key assumptions behind these policies? Do
you think that these assumptions are justified?
2. Evaluate the company’s performance during 1986 and the first nine months of 1987.
3. Given the company’s business strategy, accounting policies, and recent performance,
what is your assessment of its current condition and future potential?
Tip: try to put together the journal entries you think MANH makes for a typical sale and
typical loan transaction (doing journal entries really helped me). Questions 4-7 give you
some guidance. It’s a bit of work, but it really helps to see what’s going on.
4. MANH sells a mobile home that cost $38,000 to a customer for $40,000. The customer
put 15% down and borrowed the rest at 14%. MANH then transferred the loan, with
recourse, to Bank X who wants to earn 8% on this investment. (Note: the customer will
make payments to the bank, not MANH). Set a reasonable time limit…and then stop.
To do Questions 5-7, you will need up to five amortization tables. This is a “whole loan”
scenario. Securitizations add further complexity.
5.
Modify 1 above. The bank requires a holdback of 5% of the aggregate loan amount
(total payments) in case things go south. Separately, MANH estimates bad debts of
1.5%.
6. Assume at payment 54, the customer defaults.
7. Assume at payment 54, the customer prepays the remainder of the loan.
Carrefour S.A. (Final Case Analysis):
1. What currency should the firm issue its 10-year, 750 million euro, annual coupon
bond? Briefly explain/justify your choice.
2. What foreign currency risk exposure, if any, does your recommendation in #1
create (if any)? Please be specific about the most likely amount at risk.
3. Should the firm hedge any or all of the risk identified in #2 above? Briefly
explain why or why not.
4. What hedging instruments, if any, should be used to hedge any possible bondrelated currency risk?
5. Based on the Smithson chapters, what market imperfections (if any) can be
reduced based on your response to #4 above? Briefly explain.
6. What operational risk and/or other non-financial risks does the firm face as they
continue to increase their non-French revenues?