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Making a significant effort to thoroughly understand the case

This should be done in groups of 3-5 people. You are required to submit the case reports at the beginning of the class on the due date. The report should not exceed 7 pages (double-spaced, excluding appendices).  Use font 12, with standard page margins.  Numerical support for your analysis is required.  You are required to email me your write-up and the Excel files that show your analysis.

For each presentation, your group should appoint a designated speaker/presenter. The designated speaker will present your group’s analysis to the rest of the class. At the end of the presentation, other groups may pose questions. At this point, any member of the presenting group may respond to the questions. No one member shall present more than once. The presentations should NOT take longer than 6-7 minutes. Use Powerpoints and other visual aids as necessary. Note that the main purpose of these presentations is to give you a chance to speak up freely and for the rest of the class to participate in a relaxed atmosphere.

For case write-up and analysis, focus mainly on the core aspects (e.g., I DO NOT need 3-page background and 5-minute SWOT analysis). Focus on FINANCE!

 

Participation in group discussions and presentations: I expect that all team members will contribute equally. This includes, but is not restricted to:

Ø Reading the case carefully and completely prior to class

Ø Making a significant effort to thoroughly understand the case

Ø Completing the case report assignment and submitting it on time

Ø Being available to meet with the team prior to class start, if this is the desire of your team

Ø Being willing to respond to questions after presentations

 

If a team member does not contribute his or her fair share, I expect that your team will deal with this. If the situation cannot be resolved internally, please advise me as soon as possible. I will assume that all team members make approximately the same contribution unless you advise me otherwise.

 

Case Guidelines

 

1.     
Relate the case study to the topics/theories we learnt in class (M & M propositions, taxes,

           signaling, agency problems, etc.).

 

2.     
Do you think BBBY’s current capital structure is optimal? Discuss.

 

3.     
Explain BBBY’s current capital structure choice in the context of Trade-off and Pecking Order theories. Are there other factors you could think of that affect BBB’s capital structure choice? Can BBBY internally fund all of its investment needs and expansion plans?

 

4.     
What is BBBY’s current CFD (expected cost of financial distress). If it were to repurchase shares and issue debt, what would happen to its potential/expected CFD? Do you think this level of risk is acceptable? How about paying dividends?

 

5.     
If you were a shareholder, would you like to issue debt and repurchase shares? Discuss. What is the effect of repurchasing shares and issuing debt on BBBY’s capital structure? Also discuss the types of debt.

 

6.     
In general, what is your recommendation for BBBY? Should BBBY repurchase, and if so, how much? What kind of debt should it issue? How much dividends should it pay? Consider the materials studied such as flexibility, future expansions, risk, control, timing, etc. Note that BBBY is not required to repurchase: in fact, it could even issue new shares if needed and if the price is right. Regardless of your position, you would need to address issues such as timing (i.e., is it a right time for repurchasing/issuing securities?).

 

The questions posed above are not mutually exclusive. In order to answer these questions, you may need to analyze the company’s past, present, and future (forecasted) income statements, balance sheets, etc.( if any). You would need to compare the company with its industry peers (if any).

Sometimes, it might be necessary to make some assumptions. For instance, you might need some information on market returns but the case may not provide it. What would be a reasonable assumption of market returns? 5%? 10%? 15%? Make realistic assumptions and educated guesses as necessary. This applies to all other case analyses for this course.

 

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