Team Project for
MGT 890 Valuation, Investment, Corporate Finance and Options
Fall Semester 2000
Due February 20, 2001
It's 7 am and already your phone is ringing. Madame X is calling. She is considering making a significant investment in
TheStreet.com, or CBS MarketWatch. She wants you and your consulting company to value these potential targets and to suggest any strategic changes for the companies that you believe will enhance their value.When it is Due
Time is of the essence, so you must complete your report by the class time on February 20, 2001.
Groups
You can, and should, work on this project in groups of either three or four people.
Format
Since Madame X has a notoriously short attention span, you must limit your report to no more than
18 pages, in a standard (word-processed) page format. For what it covers, the paper is a short one, so minimize the fluff and get straight to the point.
Characteristics of Successful Projects
_
Integrated overview of the companies and their challenges._
Thoughtful appraisal of the chief contingencies that might affect your estimate of the firms’ values. Consideration of factors (at the macro, industry, or firm level) that might reasonably make the future look different than the past._
Identification of the sources of each firm’s competitive advantage._
Identification of the sources of each firm’s sustainable competitive advantage._
Explanation of whether and why these might not be fully valued in the market._
Identification of internal changes you could implement to increase profits.Your report must include the following:
_
An executive summary that states your conclusions._
An introduction_
A section analyzing both the industry today and how it is likely to evolve in the future. Note "analyzing" does not mean listing facts; rather it means taking these facts and determining what they mean for the industry today and in the future._
A section identifying the sources of each company’s current and persistent competitive advantages (if any) and how each company’s performance might be improved._
A section summarizing how your analysis in the previous section affects your calculation of the cash flows and your valuation of each firm._
A section describing your calculation of the free-cash flows. In calculating these cash flows you will use historical accounting numbers as well as your knowledge of the industry's and each firm's conditions._
A section in which you calculate each firm's beta (using more than one approach/data source), analyze its capital structure, determine the firm's cost of capital, and compute a value for each stock._
A section discussing the reliability of your analysis (in other words, a sensitivity analysis). If your recommendation to Madame X turns out to be unwise, you are likely to lose your job. (Madame X is your firm's biggest client). Explain which aspects of the analysis make you most nervous. What factors could change these aspects and how would that change your estimate of the value of each firm? Madame X is as easily put off by mechanical applications of Crystal Ball as she is by thoughtless extrapolations of the past. Especially since your thoughtful appraisal of each firm and its industry will have already highlighted some of the major contingencies facing this firm._
A conclusion and recommendation as to whether Madame X should invest in one firm or the other; i.e., is such an investment profitable given the current trading price of the target?_
An appendix (if you want – this counts against your 18-page limit)._
A bibliography (if you do not give full citations to your sources in footnotes). This counts against your 18-page limit. Note: Somewhere in the paper you must give full citations to all sources that you use.Remember: The purpose of this paper is to integrate all of the skills you have learned in 890. I also want to see how well you can apply your other courses to the material covered in finance.
Sources of Information
In part, this assignment is a test of your resourcefulness and skill in obtaining data. To keep the problem manageable, you must, however, limit your data search to materials contained in the Yale library system (including publicly available electronic sources and electronic data retrieval systems that the libraries or Yale have licensed) or which are available via the internet. And remember, Madame X has already seen the available online research reports and finds them inadequate – that is why she has contacted you!
Whom to Turn the Report to?
Please leave your report in the first TA's mailbox for your Section if your last name ends in A - L, and in the second TA's mailbox for your Section if your last name ends in M - Z.
A Word About Plagiarism
You must document all of your source material. If you take any text from somebody else you must make it clear the text is being quoted and where the text comes from. You must also cite any sources from which you obtain numbers, ideas or other material. If you have any questions about what does or does not constitute plagiarism ask! Plagiarism is a serious offence and will not be treated lightly. Fortunately, it is also easy to avoid and if you are the least bit careful about giving credit where credit is due you should not run into any problems.
Question: What happens if my group plagiarizes material and we get caught?
Answer: First, your report and the associated evidence will be sent to the disciplinary committee for action. After they issue their report I will then take action on the following basis. If you supplied the plagiarized material you will automatically fail the course. It does not matter if you did or did not know the material was going into the report unedited. If you supply material for a paper it is your job to make sure it is properly cited. If you did not provide the material but knew the report contained plagiarized material you will fail the course. If the disciplinary committee takes any punitive action and you do not fall into one of the above two categories you will have your grade reduced one level.
Question: How can I make sure that I am not associated with a report that contains plagiarized material?
Answer: Easy. Read the report before it gets turned in. If you find that material you provided has not been properly cited you can fix it thereby avoiding any problems. If for some reason your group refuses to properly cite material that you are responsible for, report this directly to me as soon as possible.