Case Guideline Questions

You first need to summarize the case to the audience. And try to present your action plans, for
example, by answering the following guideline questions. You are more than welcome to
come up with other issues you find worth addressing.

1. Diva Shoes questions are on the case

2. General Motors
A. Should multinational firms hedge foreign exchange rate risk? If not, what are the
consequences? If so, how should they decide which exposures to hedge?
B. What do you think of GMs foreign exchange hedging polices? Would you
advise any changes?
C. Should GM deviate from its policy in hedging its CAD exposure? Why or why
not?
D. If GM does deviate from its formal policy for its CAD exposure, how should
GM think about whether to use forwards or options for the deviation from the
policy?
E. Why is GM worried about the ARS exposure? What operational decisions could
it have made or now make to manage this exposure?
3. Shanghai General Motors
A. Why might GM have chosen to enter China through a joint venture? What
conflicts might arise with the JV partner and were sufficient actions taken to
mitigate these conflicts?
B. What are the competitive consequences of Chinas entry into the World Trade
Organization? How does it affect customer behavior? Supplier behavior? JV
partner behavior? Bank lending behavior? Regulator behavior?
C. What were some of the most significant costs of the first financing? What drove
the initial choices to incur these costs? Were there alternatives?
D. How would you prioritize your concerns as Newman as you approached the
refinancing?
E. Why would GM want its Shanghai subsidiary to borrow funds directly from the
local markets when GM might be able to get more attractive terms?
F. How should multinational firms develop a strategy for the major financial
decisions for their subsidiaries? How do these decisions differ from key financial
decisions at the firm level?
4. Hutchison Whampoa
A. Assume Hutchison Whampoa will require US$1 billion of financing in 1996.
Assume that new equity can be raised at $48.8 a share and that a long-term debt
issue will carry an interest cost of HIBOR plus 70 basis points (bps). How would
an equity or debt issue impact on Hutchisons financial position and performance?
B. Assess Hutchison Whampoas current capital structure in light of its future
financing needs.

C. What bond rating do you think Hutchison Whampoa will be able obtain from
Standard and Poors?
D. Compare the debt financing options. Explain why you are for/against the Yankee
bond option.
E. What kind of capital structure would you propose to Hutchison Whampoa and
why?
5. The Yell Group
A. Is Yell a good leveraged buyout candidate?
B. How similar are the U.K. and U.S. businesses? Do the management projections
in Exhibit 6 and Exhibit 7 make sense to you? In other words, if you were part of
the Apax/Hicks Muse team, would you trust them?
C. How does Yells projected debt affect its valuation?
D. How does the cross-border nature of the Yell deal affect the valuation of the firm?
E. How much is Yell worth? How much would you bid?
F. If you were Apax/Hicks Muse would you do the deal?
6. MSDI - Alcala de Henares
A. Compute the net present value of the photoelectric inspection equipment in: a.)
pesetas, by discounting peseta cash flows at a peseta discount rate; and b.)
dollars, by translating future peseta cash flows into dollars at expected future
spot exchange rates. Merck's dollar hurdle rate for a project of this type was 13%.
Assume that at the time of the analysis, annual inflation was expected to be 8%
in Spain and 4% in the United States.
B. How and why do these two net present values differ? Which analytic approach
should Merck use to evaluate this project? Why?
C. How sensitive is the NPV of the new equipment to changes in the peseta/dollar
exchange rate? What happens to the NPV if Spanish inflation is assumed to be
less than 8% per year (assume that expected dollar inflation remains at 4% per
year)?
D. Should Merck headquarters approve the equipment purchase?