NMIMS – SBM

Course Code 8010F011

Course Title Strategic Financial Management

Course Anupam Rastogi

Instructor/s
Credit Value 3 credits ( 100 marks paper )

Office Hours Tuesdays - 11.00am – 1.00 pm

Thursdays - 11.00am – 1.00 pm
Programme MBA
& Trimester IV Trimester
Pre-requisite Students must complete BMC on Bloomberg before June 17th 2018 and send the certificate to
anupam.rastogi@nmims.edu . A student must state class code MHVLSF3RD0 . Those who
have registered before and completed BMC should log back in and enter the code on the
homepage. If you have done BMC under IFM course; the same BMC should be resent.
Students should watch the following YouTube videos and revise BMC. The quiz will held in the
7th session.
Valuation: Four Lessons to Take Away
https://www.youtube.com/watch?v=Z5chrxMuBoo
Valuation (6hrs)
https://www.youtube.com/watch?v=znmQ7oMiQrM&list=PLUkh9m2BorqnKWu0g5ZUps_CbQ-
JGtbI9
76 videos On Introduction to SFM
https://www.youtube.com/playlist?list=PLJumA3phskPGZ7QPDmzNYr-fJDi5BjW6x
Learning a. To demonstrate that financing decisions are not the only criterion for decision making,
Objectives / but any enterprise, whether commercial or not, is finally judged by its financial
Outcomes performance.
b. Corporate Financial Officer CAN create value through financing, strategic and operating
decisions.
c. Students build the knowledge and skills critical to an effective manager’s
responsibilities of proposing, assessing and implementing financial investment
decisions.
d. Students learn advanced valuation techniques, and explore the empirical difficulties
and judgmental ambiguities inherent in applying the valuation process.
e. Students do valuation for exercising managerial control in a way that allows
entrepreneurs and firms to fund their operations, to create appropriate incentives, and
to manage risk
Session Plan Session Topic Pre read/Class Activity
no.
Module - 1: Financing and Financial Strategy
1 Introduction
2, 3 Introduction to Financial Strategy Williams, 2002 (HBS Case – 9-
203-068)
4, 5 Credit Markets Tombstones (HBS Case – 9-211-
063)
6 The Tax Benefits of Debt A New Financial Policy at
Swedish Match (HBS Case – 9-
212-017)
7 Quiz in Class & UAL, 2004 : Pulling Out of
Costs of Financial Distress Bankruptcy (HBS Case – 9-205-
090)
1
 8, 9 Capital Structure Stone Container Corporation (A)
(HBS Case – 9-297-047)
Module - 2: Valuation
10 WACC Cost of Capital at Mariott
Corporation (Abridge)(HBS Case
– 9-212-011)
11 Applying WACC Radio One (Abridged) (HBS Case
– 9-212-053)
12 Adjusted Present Value Berkshire Partners : Bidding for
Carter’s (HBS Case – 9-205-058)
Module - 3: Options and Risk Management
13 Hedging Currency Risk Pre-reads
1. Introduction to Corporate
Financial Engg by Peter Tufano
(HBS 9-297-053)
2. Introduction to Interest Rate
Options by George Chacko &
Andeas Sjoman (HBS 9-205-
112)
Hedging Currency Exposure at
AIFS (HBS Case –9-205-026)
14 Foreign Exchange Hedging Foreign Exchange Hedging
Strategies at GM : Transactional
and Transnational Exposures
(HBS Case –9-205-095)
15 Foreign Exchange Hedging Foreign Exchange Hedging
Strategies at GM : Competitive
Exposures (HBS Case –9-205-
096)
16 Options and Corporate Finance American Barrick Resources
Corporation (HBS Case –9-293-
128)
Module - 4: Project Presentation
17, 18, Project Presentation (Group 1-15) Read appraisal report and
19, 20 List of corporate, team members and understand financial model of
specific questions related to the the Groups making
corporate are given in Project presentations
Schedule.
Teaching / The course deals in cases that are applications of concepts some of them have already covered
Learning in first year and some are introduced using case study method and essential readings. The
Methodology course is divided into four case study modules and one project presentation module.
Module 1: Financing and Financial Strategy – How should a firm finance its activities?
Module 2: Valuation – How can we value firms with complex financial structures?
Module 3: Options and Risk Management – How can a firm use options and other derivative
securities to create incentives, raise capital, and manage risk?
Module 4: Project Presentation

2
 Assessment Specific assessments/methods % weight age
methods
Continuous assessment 100 %
BMC certificate stamped not later than June 15%
15, 2018 & quiz (Valuation and BMC)
Class participation/case discussion/ 15%
(Individual)
Written Case Discussion & Review Question 10%
(Group) (see Case Schedule below)
Project Work (Group) (see Project Work 20%
Schedule table below)
Term End Exam 40%
References 1. Corporate Finance by Ross, Westerfield, Jaffe & Kakani (RWJK), Tata McGraw Hill.
2. Principles of Corporate Finance, Richard A. Brealey and Stewart C. Myers, McGraw –
Hill, Sixth Edition, 2000.
3. Corporate Finance: Theory and Practice, Aswath Damodaran, John Wiley, 1997.

MBA
Trimester IV
Academic Year 2018-19
Case Study Schedule
Case Study presentation

a. The assigned team would submit case discussion questions including excel files, if any, by 9 pm previous
day to all class mates and the instructor. File name should be GR-I-Team-?-2018.**** Where ‘?’ is ‘Team
Number’ according to the following table and **** would reflect the type of document.
b. There will be cold calls to open a case/ question each day’s discussion and discuss the case/question
further.
c. Your participation should take the discussion forward and help in understanding the decision making.

Team Team Members Case Assignment Qs

Number Study
1 Williams, 2002 1. Evaluate the terms of the proposed $900 mn financing from the
perspective of both parties. How would you calculate the return
to investors in this transaction? If you need more information,
what information do you need?
2. What is the purpose of each of the terms of the proposed
financing?
2 Williams, 2002 1. Conduct an analysis of Williams’ sources and uses of funds
during the first half 2002. How do you expect these numbers to
evolve over the second half of 2002?
2. What is the problem facing Williams? How did it get into this
situation? How has it tries to address the problem it is facing?
3. Some might describe Williams as “financially distressed.” What
evidence is there that Williams’ business may be compromised
as a result of its previous financial decisions?
4. “Tough times demand tough decisions.” As the CEO of
Williams, would you recommend accepting the proposed $900

3
 million financing offer? If not, what alternatives would you
pursue?
3 Tombstones 1. Compute the YTM for each of the Notes in Microsoft's term
sheet and Coca-Cola Enterprises. How would you explain the
differences in yields across issues and issuers?
2. From the perspective of an investor, how would you compare the
returns on securities in each of the six issues? Qualitatively, how
would you go about estimating the expected return taking into
account all possible contingencies?
4 Tombstones 1. How does the problem of estimating returns differ for fixed-rate
versus floating rate notes? For debt versus equity securities? For
the convertible note versus either debt or equity securities?
2. Consider the variety of instruments in the case from the issuer's
perspective. Why has each company chosen to raise funds in this
particular way? From the issuer's perspective, what are the
important terms and features of each issue? What are the risks?
5 A New 1. Assuming Swedish Match faces a 28% tax rate on income and
Financial can issue bonds at a fixed krona yield of 4.5%, how much
Policy at will the company save in taxes for a SEK4 billion
Swedish recapitalization? What is the value of this interest tax shield?
Match 2. What will SM’s book value balance sheet look like after it
completes the debt issuance and share repurchase?
3. What will Swedish Match’s market value balance sheet look like:
a. Right after it announces the leveraged recap?
b. When it completes the issuance of SEK 4 billion in debt?
c. When it completes the share repurchase?
4. Can Swedish Match afford to borrow this much money? What
are the risks? Is it realistic to expect a BBB+ rating? Should the
company go ahead with a leveraged recap? If so, would you
approve a larger recapitalization?
6 UAL, 2004 1. What events led UAL to file for bankruptcy protection in
December 2002? How does a Chapter 11 bankruptcy work? Why
can UAL keep operating even though it is bankrupt? How does
Chapter 11 differ from a Chapter 7 bankruptcy?
2. What is the rationale for allowing companies to restructure their
debts and operations under Chapter 11 bankruptcy protection?
3. In what ways is financial distress (being in or near bankruptcy)
affecting the value of UAL's business? Do the costs of financial
distress vary across industries? What types of firms have high
costs of financial distress? How do the costs of financial distress
affect a firm's choice of optimal capital structure?
4. What does UAL have to do to emerge from bankruptcy? As
Tilton, what plan of action would you propose? Would you
continue to fund the pension plan?
7 Stone 1. What was the basis of Stone Container’s successful growth
Container during its first fifty years? What was its product market strategy?
Corporation What was its financial strategy?
(A) 2. How does Roger Stone's leadership of the company compare to
that of his predecessors? In general, would you judge his
leadership to have been successful? Why or why not?
3. Analyze Stone's present capital structure. What is the optimal
target capital structure for Stone? Where is Stone today relative
to its optimal capital structure?
4. Estimate Stone Container's cash needs over the next year
assuming that paper and linerboard prices remain at 1992 levels.
Suppose prices drop, so that revenues fall by 10% from current

4
 levels, but volumes remain the same. How do your estimates
change? What if prices increase by 10%?
5. What is the impact of each financing alternative on Stone's cash
surplus or shortfall? What is the impact of each on Stone's capital
structure?
6. Which financing alternatives should Stone pursue?
8 Stone 1. Explain the provisions of the convertible subordinated note.
Container What option is embedded in the convertible? If the linerboard
Corporation business recovers, will the convertible behave more like debt or
(A) equity? If it continues its slump?
2. Why did the market greet the announcement of a new financial
plan so negatively?
3. What are other challenges are there to resetting Stone's capital
structure to its optimal level? What are the broader implications
for raising capital and setting capital structure? For the global
financial crisis and for the global economy during a period of
deleveraging?
4. What should Stone do now?
9 Cost of Capital 1. How does Marriott create value for its shareholders? Why does it
at Mariott need hurdle rates? For what type of investment decisions should
Corporation Marriott use its corporate WACC? Its divisional WACCs? What
are the advantages and disadvantages of using a single corporate
WACC?
2. What hurdle rate would you recommend for the lodging
division? [For the purposes of this case, assume a beta for
Marriott debt of 0.15.] What if its investments in lodging were
all-equity financed?
10 Radio One 1. Should Liggins and Royster buy the 21 radio stations? What are
the benefits and the risks of acquiring them?
2. How much are the stations worth? Use the weighted average
cost of capital (WACC) valuation method to estimate value. [For
the purposes of this case, assume a market risk premium of 6%, a
beta for Radio One debt of 0.2, and a closing date of December
31, 1999, which changes the amortization expense in 2000 to
90,048 from 45,024.] Do you think the cash flow forecasts are
reasonable?
3. Royster anticipated offering 30X BCF to buy the stations. Is this
a reasonable amount to pay given the acquisition prices for other
radio stations and the value you calculated in Question 2?
11 Berkshire 1. How do financial buyers like Berkshire Partners create value?
Partners : Given the opportunity, would you invest in Berkshire as a limited
Bidding for partner?
Carter’s 2. Is Carter's an attractive LBO candidate for Berkshire? Why is
Investcorp selling?
3. How much cash flow will Carters generate in the next five years
(2002-06) based on management estimates?
4. How realistic are the management forecasts in light of Carters’
historical performance?
5. What should the Berkshire team bid?
12 Hedging 1. What gives rise to the currency exposure at AIFS?
Currency Risk 2. What would happen if Archer_lock and Tabaczynski did not
hedge at all?
3. What would happen with a 100% hedge with forwards? A 100%
hedge with options? Use the forecast final sales volume of
25,000 and analyze the possible outcomes relative to the ‘zero
impact’ scenario described in the case?
4. What happens if sales volumes are lower or higher than expected
as outlined at the end of the case?
5
 5. What hedging decision would you advocate?
13 Foreign 1. Should multinational firms hedge foreign exchange rate risk? If
Exchange not, what are the consequences? If so, how should they decide
Hedging which exposure to hedge?
Strategies : 2. What do you think of GM’s foreign exchange hedging policies?
Transactional Would you advise any changes?
and 3. Should GM deviate from its policy in hedging its CAD
Transnational exposure? Why or why not?
4. If GM does deviate from its formal policy for its CAD exposure,
Exposures
how should GM think about whether to use forwards or options
for the deviation from the policy?
5. Why is GM worried about the ARS exposure? Why operational
decisions could it have made or now make to manage this
exposure?
14 Foreign 6. Why is GM worried about the level of the yen?
Exchange 7. How important is GM’s competitive exposure to the yen?
Hedging 8. How would you go from information in the case about
Strategies : competitive interactions with Japanese manufecturers to a value
Competitive exposure for GM?
Exposures 9. Are these less information-intensive methods that might allow
you to access the competitive exposure of GM, specifically, or
other firms generally? How would you implement such a
method?
15 American 1. In the absence of a hedging program using financial instruments,
Barrick how sensitive would Barrick stock be to gold price changes? For
Resources every 1% change in gold prices, how might its stock be affected?
Corporation How could the firm manage its gold price exposure without the
use of financial contracts?
2. What is the stated intent of ABX’s hedging program? What
should be the goal of a gold mine’s price risk management
program?
3. What would convince you that a price risk management program
created value for its shareholders ex ante.
4. How would you characterize the evolution of Barrick’s price risk
management activities? Are they consistent with the stated
policy goals?
5. How should a gold mine which wants to moderate its gold price
risk compare hedging startegies (using futures, forwards, gold
loans, or spot deferred contracts) with insurance strategies (using
options)? On what basis should these decisions be made? Once a
firm has decided on either a hedging or an insurance strategy,
how would it choose from among specific alternatives?
6. What is a ‘spot deferred contract?’ Is it an option? A forward
contract? Why has ABX chosen to rely on spot deferred contracts
relative to other gold derivatives?

6
 MBA
Trimester IV
Academic Year 2018-19
Project Work Schedule
Instructions:

1. Submit two files. First file will be a word DOC file having general description of the problem given to you, historical
background, industry description, company description and finally, answer of the questions given to you. Size of
doc files should not be less than 4,000 words. Second file will be an EXCEL file having at least last three years
balance sheet, income statement and source and use of funds in one page each. Relevant capital market data,
industry data and of competitors be given in tables. A table giving relevant financial and market data of the last
ten years should be included. Any other data and calculation which support your Qs must be included in this. This
is replication of exhibits of HBS cases but of the assigned company to you.
2. Sources of information: Bloomberg, company website, NSE and BSE websites for knowing dates of official
announcements, in.finance.yahoo.com and news appearing in media. Read Chairman’s speech and management
discussion to understand company’s financial strategy. All information in your answer and excel file should duly
acknowledge the source of information.
3. File name should be GR-I-Crew-?-2018-########.**** Where ‘?’ is ‘Crew Number’ according to the
following table, ######## would be company, and **** would reflect the type of document.
4. Send the two files to anupam.rastogi@nmims.edu at least 24 hrs before the presentation day.

Amazon India, Reliance Communication

Crew Crew Members Company Qs to be answered

Number
I JK Laxmi 1. What is the business strategy of the company?
Cement 2. What is its financial strategy?
3. Compare its ROC and ROI with its top three competitors.
4. Why does it enjoy such a high PE ratio?
II Bajaj Finance 1. Suggest a business strategy for the company?
2. How should it restructure its capital to survive?
3. What would be advantages and disadvantages in converting
itself to a bank?

III Videocon 1. Why is VI referred to NCLT by the RBI?

Industries (VI) 2. Why did its business strategy failed?
3. What should be its financial strategy to survive?

IV Orchid 1. Explain IBC and compare it with the US bankruptcy code.

Pharma 2. Suggest business and financial strategy for Orchid Pharma to
survive for its promoters
3. Who is best suited to take it over and why?
V D-Mart 1. Would it go Walmart way?
2. Explain its business and financial strategy?
3. How does it effectively deal with competition from e-market?
4. Why did the entry of Amazon not destroy D-Mart’s value?

VI NBCC 1. How should it secure its strategic advantage?

2. Is government ownership a drag on its re-investment plan?
3. What is its ROI and ROE over the next 10 years?

7
 4. What is its financial strategy?
5. Justify its market valuation.
VII DHFL 1. Explain business strategy of DHFL. Is it supported by its
financial strategy?
2. What terminal growth rate would support its P/E ratio? Is it
sustainable?
VIII Tata Elexi 1. Explain business strategy of Tata Elexi.
2. How does it manage forex risk?
3. What is ROE? Is it sustainable?
4. Would it benefit from the merger with the TCS?
IX Amazon 1. Why does it want to takeover Flipkart?
2. What should be Flipkart’s valuation?
3. What should be its argument for Competition Commission of
India?

X ICICI 1. What should be its business strategy?

Prudential Life 2. Compare its financial strategy vis-à-vis HDFC Life?
Insurance 3. What would be its ROE in 10 years and 30 years?
Company 4. Why does HDFC Life enjoy a premium over ICICI Pru?
XI Maruti India 1. Explain its business strategy.
2. Explain its financial strategy.
3. What is its ROC and ROE in rupee?
4. Unlike other MNCs why has it pursued a low dividend policy?
5. Calculate forex hedging – competitive exposure for VW vis-à-
vis Maruti.
XII Meghmani 1. What is its business strategy against environmental risk?
Organics (MO) 2. What would be its ROC and ROE in next 10 and 30 years?
3. Who are its competitors? Compare their PE with that of MO’s.
XIII Tata Steel 1. Explain its business and financial strategy.
2. Does its valuation justify its business strategy?
3. Demolish its premium valuation?
XIV HNA Group, 1. Explain HNA’s financial strategy to acquire Hilton Hotels.
China 2. What is business strategy of the HNA group

XV Tata Sons 1. What Tata Sons can learn from GE?

2. What should be Tata Son’s financial and business strategy?

Faculty Signature

Approved by:

Area Chairperson

Program Chairperson

Dean, SBM