Corporation Finance

Corporation Finance

Course Schedule

Tuesday, January 17: Introduction

Thursday, January 19: Clarkson Lumber Company

Reading: Note on Financial Analysis

a. How is the company's financial performance? (Examine appropriate financial ratios.)

b. Why has Clarkson Lumber borrowed increasing amounts despite its consistent profitability?

c. How has Mr. Clarkson met the financing needs of the company during the period 1993 through 1995? Has the financial strength of Clarkson Lumber improved or deteriorated?

d. How attractive is it to take trade discounts?

Tuesday, January 24: Clarkson Lumber Company (continued)

Reading: a. Note on Financial Forecasting

b. Note on Bank Loans

a. How much of a loan will Mr. Clarkson need to finance the expected expansion in sales to $5.5 million in 1996 and to take all the trade discounts? (Prepare a projected income statement for 1996 and a pro forma balance sheet as of December 31, 1996.)

b. As Mr. Clarkson's financial adviser, would you urge him to go ahead with, or to reconsider, his anticipated expansion and plans for additional debt financing?

c. As the banker, would you approve Mr. Clarkson's loan request; and if so, what conditions would you put on the loan?

Thursday, January 26: SureCut Shears, Inc.

a. Evaluate SureCut's financial performance using standard ratios.

b. Why can't SureCut repay it's loan on time? In addressing this question, you may find it useful to construct a "sources and uses" statement for the period June 30, 1995 - March 31, 1996.

Tuesday, January 31: SureCut Shears (continued)

a. What actions would you recommend that SureCut take in order to address its financial problems? If Mr. Stewart agrees to a loan extension and your recommendations are implemented, when will SureCut be able to repay the loan in full?

b. Would you, as Mr. Stewart, agree to a loan extension? What conditions or terms would you require?

c. Compare the nature of the financial problems facing SureCut with those of Clarkson Lumber.

Thursday, February 2: Advanced Technologies, Inc.

Case Submission #1 Due

a. In a volatile industry such as semiconductor equipment manufacturing, how useful is long-term financial planning?

b. What are the key characteristics of ATI's markets and operating policies? How do these characteristics influence the company's financial structure?

c. Has Mr. Michaels done a good job of financial planning? What set of possible conditions would place ATI under the greatest financing pressure, and how great would that pressure be?

d. Should ATI sell equity in 1998, thereby bringing its financial structure more in line with those of its main competitors?

Tuesday, February 7: Continental Carriers, Inc.

a. How is the company's financial performance? (Examine appropriate financial ratios.)

b. Given the nature of CCI's business, how much debt can it support?

c. What are the respective costs of the different financing alternatives suggested?

Thursday, February 9: Continental Carriers (continued)

a. What information does the EBIT chart (Exhibit 3) provide? What inferences can we draw from it?

b. What are the qualitative advantages and disadvantages of each of the forms of financing under consideration?

c. How should the acquisition of Midland Freight be financed, taking into account the explicit costs of the different alternatives as well as other relevant considerations?

Tuesday, February 14: Debt Policy at UST Inc

.

a. From the perspective of a bondholder, what are the primary attributes and business risks for UST?

b. Why is UST considering a leveraged recapitalization after such a long history of conservative debt policy?

c. Estimate the incremental effect on UST's value if the entire $1 billion recapitalization is implemented immediately (January 1, 1999). Assume a 38% tax rate and perpetual debt. Also analyze, via a pro forma income statement, whether UST will be able to make interest payments.

d. Would UST be better off with a different initial debt level? Should it adjust the debt level through time?

e. Will the recapitalization hamper UST's ability to maintain its long history of dividend payments?

Thursday, February 16: No Class Meeting

A "make-up" session is tentatively scheduled for 7:00 PM on Thursday February 2nd. The topic will be a brief review of Capital Structure Theory.

Tuesday, February 21: Stone Container Corporation (A)

a. Compare Roger Stone's growth and financial strategies with those of his predecessors.

b. Examine the sensitivity of Stone Container's earnings and cash flow to the paper and linerboard pricing cycle. Assume sales volume of 7.5 million tons per year and a 35% marginal tax rate. What would be the effect of a $50 per ton price increase? Is such an industry-wide price increase plausible?

c. What should be Stone Container's financial priorities in 1993?

d. Of the financing alternatives described in the case, which would be in the best interests of Stone's shareholders? Which would be in the best interests of its high-yield debt holders? Which would be favored by its bank creditors?

Thursday,