{"title":"Ito's Dilemma (C)","authors":"Kenneth M. Eades","doi":"10.2139/ssrn.909362","DOIUrl":"https://doi.org/10.2139/ssrn.909362","url":null,"abstract":"Mrs. Ito is approached by a neighbor who asks her advice on investing in a stock-market certificate of deposit (CD) offered by NationsBank.The CD pays interest that is pegged to the S&P 500 and yet guarantees 100% return of principal upon maturity, in five years.This case provides an example of how options are sometimes embedded in securities marketed at the retail level, and it provides students with an opportunity to use a financial-engineering approach to analyze the instrument. See the A and B cases (UVA-F-0936 and UVA-F-0937).","PeriodicalId":302905,"journal":{"name":"Darden Case: Finance (Topic)","volume":" 6","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120830452","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Mexico—1982","authors":"M. Eaker","doi":"10.2139/ssrn.1417775","DOIUrl":"https://doi.org/10.2139/ssrn.1417775","url":null,"abstract":"This case describes the situation facing the new president of Mexico in December 1982: internal and external economic problems have crippled the country. The student is given the opportunity to analyze the problem, its sources, and development, and to recommend economic and political solutions that will enable Mexico to restore its economy. The conflicting desires of international creditors and domestic political/social groups provide a framework in which external balance and internal balance are difficult to achieve simultaneously.","PeriodicalId":302905,"journal":{"name":"Darden Case: Finance (Topic)","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124985363","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Duke Power Company: Equity-for-Debt Swap (B)","authors":"R. Bruner","doi":"10.2139/ssrn.1278419","DOIUrl":"https://doi.org/10.2139/ssrn.1278419","url":null,"abstract":"The treasurer of this large electric utility (see A case UVA-F-0561) must assess the consequences of a proposed debt-for-equity swap for the capital structure, stock price, and earnings per share (EPS). Students are given largely completed analyses. (The C case is UVA-F-0563.)","PeriodicalId":302905,"journal":{"name":"Darden Case: Finance (Topic)","volume":"38 4","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121002746","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The Effects of Debt Equity Policy on Shareholder Return Requirements and Beta","authors":"Robert S. Harris, Susan J. Chaplinsky","doi":"10.2139/ssrn.909394","DOIUrl":"https://doi.org/10.2139/ssrn.909394","url":null,"abstract":"This note outlines the link between shareholder-return requirements and a firm's use of debt. It explores the theoretical arguments concerning how the cost of equity changes with the use of debt and discusses the limitations of each view. It also provides conceptual and practical guidance on the use of \"levered\" and \"unlevered\" betas. Excerpt UVA-F-1168 THE EFFECTS OF DEBT EQUITY POLICY ON SHAREHOLDER RETURN REQUIREMENTS AND BETA This note outlines the link between shareholder return requirements and a firm's use of debt. We review specific theoretical models used to estimate how shareholders' risk premium will change as the firm changes its mix of debt and equity financing. These models provide guidance to financial managers as they consider changes in debt policy, estimate capital costs, or value corporate securities. Key insights include the following: •As debt increases, shareholders require higher returns since they face higher financial risk. This higher financial risk results from spreading the firm's business risk over a proportionately smaller equity base. Equivalently, shareholders' risk increases as larger amounts of interest are committed to be paid to creditors from the firm's operating cash flows. •The additional risk premium shareholders require for this additional financial risk increases directly with the firm's debt/equity ratio. . . .","PeriodicalId":302905,"journal":{"name":"Darden Case: Finance (Topic)","volume":"40 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124139326","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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