Corporate Finance Course Research Articles

The Integration of a Python-Based Corporate Finance Course Teaching Tool

This paper introduces the development process of a financial analysis tool based on Python and discusses how to apply it to the teaching practice of corporate finance courses. The joint participation of students and teachers in the development of this practical project enhances the students computer operation skills and also provides them with a complete financial analysis practical project. This paper focuses on analyzing the problems encountered by students during the development process and provides corresponding solutions.

Milkbasket takeover by Reliance Retail Venture Limited: the ethical dilemma

Learning outcomes After completion of the case study, the students would be able to comprehend the crisis at hand for Milkbasket, why did it resist Reliance’s takeover in the first place, then to evaluate the pros-cons and future prospects for the organization post-acquisition; to evaluate from an ethical standpoint the process of mergers and acquisitions using ethical frameworks to understand how, when, to whom and through what processes do mergers and acquisitions qualify the test of being ethical; and to analyse different hostile takeovers, especially through tender offers, proxy contests and toehold bidding strategy in this case. Case overview/synopsis Founded in 2015, Milkbasket was a micro-delivery start-up based in Gurugram (near New Delhi), India. Milkbasket would let its subscribers order till midnight and deliver groceries, milk and other everyday essentials to its subscribers before 7 a.m. next day. It had burnt a lot of cash and was facing difficulty in getting investors; as such they were engaged in discussions with many companies. Two of them – Reliance Retail Venture Limited and BigBasket – were not accepting the proposed valuation, but Milkbasket got term sheets from other two companies. Complexity academic level This case study can be used for graduate courses on strategic management, business ethics and corporate governance. This case study can also be used in corporate finance course to highlight the importance of making ethical/responsible judgements to protect stakeholder interests. Supplementary materials Teaching notes are available for educators only. Subject code CSS 3: Entrepreneurship.

A Method for Teaching Overinvestment and Underinvestment Problems in Corporate Finance Courses

One of the most important concepts in corporate finance is agency theory. When the financiers of a firm are not also the managers of the firm, the incentives of different financiers (lenders and owners) often conflict. One of the biggest problems in agency theory is that of overinvestment and underinvestment due to misalignment of shareholder and bondholder incentives. While this problem has many real applications, the underlying concepts frequently seem quite abstract to business students. This paper presents an implementation of a simple numerical spreadsheet model that can clearly illustrate the conflicting incentives of lenders and owners that lead to overinvestment and underinvestment.

Solving Quantitative Problems in Finance: A Tool for Unlimited Practice

Students are continuously told that the way to learn finance is to “do finance” which means to practice solving quantitative problems. For this recommendation to work, however, it requires students to have a tool that allows them ample opportunities to practice. This paper presents such a tool and one that instructors can easily create as well as customize to their own way of presenting topics. Moreover, with pressure to keep costs for students down, this tool requires no subscription to any commercially available product. Although this tool has been developed to include many standard finance topics, this paper illustrates the use of the tool for various aspects of the “Time Value of Money” topic. The paper includes a description of how the tool has been applied in an introductory corporate finance course.

Breaking Down the Silos Between the Introductory Financial Accounting and Corporate Finance Courses

In this paper, we provide a broad overview of the topics that are taught in undergraduate financial accounting and corporate finance classes. We document the overlaps in these introductory courses and describe the similarities and differences in how topics are taught in both disciplines. We then discuss, topic-by-topic, how instructors can reinforce the connections between the two fields in the classroom for more effective teaching and deeper learning. Our paper will help instructors to reinforce the connections between the two disciplines in the classroom for more effective teaching and deeper learning. It also provides the first step towards building effective teaching materials for accounting and finance courses for successful integration.

Should I buy a Caribbean condo during a pandemic? Valuing a real estate investment using cash flows

Research methodology This case was a real-life situation faced by the author. Names were changed, so students would not know that the author was the protagonist. The case had been developed over several years as a capstone to the capital budgeting section of an MBA finance course and an advanced undergraduate course. Case overview/synopsis Trey and Lauren Gallo were considering the purchase of a vacation condo that also generated rental income. The current owners were willing to sell at a lowball offer of $605,000 as the pandemic entered its 13th month. The Gallos felt they needed to act fast to get this deal. However, the risks were extraordinary, as the pandemic had reduced rental income by 50% and borders had just recently closed. The case provides all data needed to compute rental revenues, capital expenditure, operational expenditures and financing costs. Students are expected to compute the NPV and IRR of free cashflows. Students will compute and evaluate the cost of capital using the condo’s projected debt structure, a choice of several proxy betas and a project risk premium. The case also uses extensive sensitivity analysis. This case differs from corporate capital budgeting problems because it evaluates both levered and unlevered cashflows, and the cashflows include savings from personal use. The case has been successfully used in MBA finance courses and advanced undergraduate finance courses. The case can be used as a capstone case for capital budgeting or a comprehensive exam in undergraduate, MBA and executive programs. The case questions can also be spread throughout a course to cover the topics of financial statement forecasting, free cash flows, capital budgeting, cost of capital and sensitivity analysis. Complexity academic level Earlier versions of this case have been used in an advanced undergraduate corporate finance course and MBA finance courses. The case is generally used as a capstone to the material on capital budgeting. Students should have already covered material on financial statements, loan cashflows, levered and unlevered cashflows, CAPM, proxy betas, weighted average cost of capital, NPV and IRR. This case is also appropriate for courses in real estate finance and personal finance.

Experiential Learning: The Case of Training MBA Students in an Asian School

Consulting for a startup company is an effective way for Master of Business Administration (MBA) students to learn about management consulting, and the ways and means of a startup company. This paper discusses the experience of an MBA startup project within the context of a core corporate finance course. The project requires the active engagement of several groups of stakeholders—MBA students, the university’s entrepreneurship incubator, a selection of startup companies, and the project’s academic collaborators. In line with the literature, we find that entrepreneurship education through student-startup collaboration contributes to the students’ entrepreneurial learning, and that the offering of an experiential learning course provides students with the opportunities to work with the external business community that yield positive benefits for students, startups, and the university. Our findings add to the experiential learning literature in business education and show that practice-based learning offers an effective learning experience for students whereby all stakeholders are exposed to various communities of practice that facilitate multiple streams of learning. We provide insights on experiential learning from the implementation of a “new” learning pedagogy for MBA students at an Asian institute of higher learning.

Graduate corporate finance: Are math skills an obstacle?

This research examines the relationship between prerequisite algebra knowledge and graduate corporate finance course performance. Standardized math questions designed for an undergraduate introductory finance course also predict quantitative performance metrics among 128 business graduate students. Results demonstrate that prerequisite math skills, while to a lesser extent than with undergraduate finance courses, do remain an obstacle for the quantitative performance metrics of a graduate corporate finance course. However, math skills demonstrate an inverse relationship with team-based case study performance, thereby obscuring the overall impact of any math skills deficiencies. This research presents a three-question course-embedded assessment tool to support finance course assurance of learning in an AACSB context.

Developing Faith Integration in a Principles of Corporate Finance Course

This paper provides a high-level approach to faith integration for commonly taught topics in a principles of corporate finance course. The paper presents a review of the literature on faith integration, frequently taught corporate finance topics, and the integration of faith and corporate finance. The paper then presents faith integration opportunities for six commonly taught corporate finance topics and concludes with a brief summary and discussion of future research.

Egg production: conventional or cage-free?

Research methodology This case was primarily researched using academic research papers, industry reports (Egg Industry Center and others), and finance databases including Standard and Poor’s Capital IQ. Regarding the cost and investment budgets, the case relies mainly on an experiment conducted by the Coalition for Sustainable Egg Supply, updated by the authors of this case. Case overview/synopsis Eggs produced by cage-free birds, while more expensive than conventionally produced eggs, are gaining in popularity among consumers who want only eggs that are produced more humanely. A number of major distributors, including Whole Foods, McDonalds and Starbucks have pledged to sell only cage-free produced eggs by 2025. Several states including California, Oregon and Michigan have passed laws limiting conventional egg production. The case provides costs and industry information and needed to project free cash flows and risk-adjusted opportunity cost of capital and perform break-even capital budgeting analysis of the two egg production alternatives. Complexity academic level This case is appropriate for graduate corporate finance courses. It is particularly appropriate for agribusiness finance courses. A preliminary exercise was used during the fall 2018 in a land grant university, just after the “Prevention of Cruelty to Farm Animals Act,” also known as Proposition 12, was passed in California in favor of cage-free egg production. The exercise was revised and used in the fall 2019 in the same class. This extended version of the case, was classroom tested in the fall 2020 in an agribusiness finance graduate class, with agricultural economics and business students enrolled.

Implementing the Flipped Classroom in an Undergraduate Corporate Finance Course

This study analyzes flipped mode of instruction in Corporate Finance. In the current environment, with many students in quarantine and greater emphasis on self-study, it is even more relevant to understand how students understand and retain concepts derived from online environment. In this study, performance of students in flipped mode is compared with the performance in traditional lecture-style. In flipped class, students watched a brief video-lecture, took an online assessment quiz prior to attending an interactive discussion-based class session, unlike the traditional lecture style. The results of this study suggest that with flipped mode, most students take greater responsibility of their learning, prefer hands-on learning, achieve more and feel more satisfied with their performance. However, there is no statistical difference in the test scores of students in the flipped classroom as compared to the traditional classroom.

Hotel Business Inn

Learning outcomes These are the three most important learning outcomes: discuss the relevance of capital asset pricing model (CAPM) as the methodology to estimate the cost of equity for an investment in an emerging market; analyze the different alternatives to estimate country risk discussing the pros and cons of each. Consider the additional complexity in estimating the cost of equity, contrasting the perspective of a local, non-diversified investor with that of a multinational company operating in 39 countries. Case overview/synopsis The Chief Financial Officer of a business group has to determine the correct discount rate for an investment in a new hotel in Guayaquil, Ecuador. The group has traditionally used the same discount rate for all projects and is now presented with several alternatives by his team. Estimating the correct country risk adjustment for the project is an important challenge. He knows that there is no clear solution to this challenge that is accepted by all practitioners and academics, but he has to present a recommendation to the board. Complexity academic level The case study is designed for corporate finance, appraisal or international finance courses in both MBA and executive training programs. To discuss this case study, students are assumed to have been already exposed to the weighted average cost of capital and the CAPM. Supplementary materials Teaching Notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes. Subject code CSS 1: Accounting and finance.

Lonmin Plc: mining and responsible investment – dangerous liaisons?

Subject area The case presents a responsible investment dilemma case. Swedish institutional responsible investors have to make a choice about their investment in Lonmin, a platinum mining company whose operation are located in South Africa and has been the theatre of workers’ killings. Study level/applicability The case targets MBA students and can be taught in a corporate finance course, a corporate governance course, a business ethics course or on sustainable and responsible investment. Case overview The teaching case follows the journey of Hilde Svensson, the head of equities for a Swedish responsible investor. She has been tasked to visit the site of Lonmin in South Africa which is the theatre of a tragic workers’ unrest that led to the killings of 44 workers in August 2012. She must decide what the best responsible investment strategy is to adopt with Lonmin for the future. Expected learning outcomes The students are expected to learn about what responsible investment entails and the dilemmas that can be faced by responsible investors. The case also gives insight to business students and the complexities of environment, social and governance (ESG) analysis and how to integrate financial and ESG analysis when you are a responsible investor. Supplementary materials Teaching Notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes. Subject code CCS 1: Accounting and Finance

Restructuring at Suzlon Energy Ltd

Synopsis The case highlights the ambitious growth strategy of Suzlon, an Indian company specializing in non-conventional (wind) energy. In 2007, Suzlon announced the acquisition of REpower of Germany, one of the top wind power companies in the world. It issued zero coupon and coupon bearing foreign currency (US dollar) convertible bonds (FCCB) amounting to $760 million to finance the acquisition. These bonds were listed in Singapore. Due to deteriorating business conditions the company experienced a sharp decline in profitability and stock price resulting in a debt overhang. At the same time, the Indian rupee depreciated from INR44 to INR55 leading to losses on largely unhedged, foreign currency coupon payments. The company had to restructure its capital structure to escape bankruptcy. Since FCCB holders did not agree to restructure the terms of the instrument, the company had to turn to senior lenders to restructure debt. Eventually Suzlon had to sell-off REpower to reduce leverage. Research methodology The case is based on interviews of market intermediaries and published information. The information relating to the restructuring has been taken from the information statement filed with the Securities Exchange Board of India and the Stock Exchanges. The timeline of events were constructed from the information available in company press releases. Financial statements and other details are from the documents filed with the regulators and supplemented with the information available in Prowess database. The stock price and stock market index data are from the websites of Bombay Stock Exchange and the National Stock Exchange of India. Exchange rates, inflation and interest rates have been taken from Bloomberg and the Reserve Bank of India website. Valuation inputs like multiples are from Prowess database and security analyst reports. Sources of information are documented appropriately in the case and instructor’s manual. Although we interviewed the investment bankers involved in the restructuring we have not included any private information in the case to preserve confidentiality. Relevant courses and levels This case can be used in a corporate finance course or in a module on debt restructuring in a corporate restructuring course or in the financing module in an advanced corporate finance course or in an International Finance course. It can also be used to teach an integrated approach to valuation and financing in a valuation course. Theoretical bases The case highlights the rationale for issuing FX convertible debt, parity conditions in international finance and the use of alternate valuation models.

Autozone, Inc.

The case can be taught in an introductory corporate finance course or to more experienced students or executives to spur a discussion about share repurchases and corporate financial strategies in general. If used in an introductory course, the case is most effective if preceded by a traditional dividend class. It follows a portfolio manager of Johnson & Associates, Mark Johnson, who is reviewing his holdings, including his position in AutoZone in early 2012. A prominent shareholder, Edward Lampert, had begun liquidating his position in AutoZone, and Johnson is concerned that Lampert's reduced position could lead the company to stop using share repurchases as a method of distributing cash flows to shareholders. The case lists a number of alternative uses for the cash flows and asks students to assume Johnson's role as an analyst and assess the likely impact of those alternatives on AutoZone's stock price.

A Case Study Of Share Repurchases: Value Creation Or Financial Engineering

As growth rates in the global economy have slowed, the use of financial engineering as a tool for managing earnings per share (EPS) has grown. Stock repurchasing is frequently used to increase earnings per share and perceived value. Leverage recapitalizations fund major repurchasing programs as firms take advantage of historically low interest rates. This case requires students to analyze the impact of repurchases on EPS and to also reflect on future growth prospects when payout amounts exceed net income over an extended period of time. It allows students to critically examine the inputs for valuing stocks using the total payout model. The case is constructed using real world information extracted from 10K reports and from recent company announcements. It can be used at the undergraduate (400) or graduate level. It is most suitable for Corporate Financial Management or Corporate Finance courses. The basics of financial statement analysis, time value of money, stock valuation, capital structure and payout practices are necessary to successfully navigate the case.

Väätsa Agro AS financial distress

Subject area Corporate finance, financial management. Study level/applicability The case is suitable for Master's level corporate finance or financial management courses. Sufficient prior theoretical knowledge of corporate finance concepts is required. Case overview Väätsa Agro AS is an Estonian dairy farming company. Although the company had operated successfully in the past, its ownership changed significantly in 2006 leading to changes in the company's capital structure. Starting from 2008 milk prices on global markets decreased and this trend had also affected the company's profits. As a result of these developments the company's financial situation had deteriorated since 2008 and towards the end of 2009 the company had problems in meeting its obligations. On 1 September 2009 its owners hired a consultancy firm represented by Karl Kukk to tackle the company's problems. Expected learning outcomes The case should help students to: understand the risks of LBOs; understand the importance of an appropriate capital structure of a firm; evaluate a company's financial situation and compare it with competitors; understand the alternatives facing firms in financial distress; and choose the best course of action for a distressed firm considering the pros and cons of each alternative for each stakeholder group. Supplementary materials Teaching notes are available; please consult your librarian for access.

Effective and Efficient Use of Excel in Teaching Financial Ratios and Cash Flows

This paper discusses using a particular Excel assignment in a Corporate Finance course at the undergraduate and graduate level. Excel worksheets allow students to more readily see interactions between concepts, and a finance major who is sufficiently skilled in Excel has an advantage entering the job market over those who are not. The paper discusses using an Excel assignment that requires students to complete financial statements and calculate financial ratios and cash flows. It also discusses methods for evaluating the worksheets that the students turn in. Grading Excel assignments can be tedious. This paper also discusses using resources within Excel to reducing the time spent on evaluating student work and making it more efficient.

The Value Effects of Strategic Alliances: Renault-Volvo and Renault-Nissan

This case discusses value creation and destruction in the strategic alliances of Renault with Volvo and Nissan. This is an advanced MBA level case for corporate finance courses.

A Note on Value Creation

A technical note on value measurement and creation for MBA students of corporate finance courses. Discusses the creation of value at (a) the firm level and (b) the shareholder level; and the measurement of value as (a) a difference of returns and (b) a difference of monetary amounts. Explains the conditions under which value is created via a comprehensive framework that links ROCE, WACC, ROE, cost of capital, NPV and EVA.