Glen Vasel Professor of Finance
Director � Heizer Center
School of Management
- Teaching. Course
syllabi are available in Adobe Acrobat
Finance (Finance II) This course covers the basics of capital
budgeting, dividend policy, and capital structure. It is the second
course in the finance sequence.
Strategy and Tax Planning. This course is an advanced corporate
finance class. It discusses the ways in which taxes and other non-tax
factors influence investment, financing, and dividend decisions.
Options Valuation. This is a course that examines the different ways
to value firms and projects ranging from the simple (multiples) through
the more complex (real options). The class uses three techniques
(Black-Scholes, Binomial, and Simulation) to value options. The class
examines the option to invest (in the future), the option to wait (invest
later), the option to abandon (quit investing later), and the option to
open and shut an investment.
Materials. These are cases which I have written and use at Kellogg.
- The Western-Southern Enterprise Case.
- Background. This case examines the problem faced by WSE a mutual insurance company located in Ohio at the end of 1996. Their investment in Cincinnati Bell stock has been phenomenally successful, but has left them potentially over weighted in equities in general and a single stock in particular. The cost of diversification is declaring and paying tax on a large capital gain. The possible solutions include maintaining the position, selling the position, or protecting the position by issuing a Debt Exchangeable for Common Stock security (DECS).
- Educational Purpose. I use the case in a financial strategy and tax course. Thus the case is used to ask the students to trade off the benefits of diversification (which they have to justify) against the cost of declaring the capital gain early (which they must quantify). In defending their choices, students are asked to evaluate the various tax and non-tax benefits and costs of each solution. You can use this discussion to review the costs of financial distress. The case is also useful for teaching security design. Since the client (WSE) has several potentially contradictory objectives the case lays out a situation where security design can improve upon the simple alternatives. The case provides structuring details of the DECS and thus you can discuss why various features were included in the design of the DECS. I use an adjusted present value (APV) to compare the value of each of the three choices.
- West Teleservices.
- Background. The case is set at the end of 1996. West Teleservice, a telemarketing firm, is considering going public and the case asks the students to price their IPO. During the previous 18 months, seven other telemarketing firms have gone public. Prior to this, there were no publicly traded telemarketing firms. The industry is in flux. Historically, telemarketing was conducted by wholly owned subsidiaries of the telephone companies, banks, and insurance companies. However, cost cutting has caused many of these firms to outsource the business. Thus although total telemarketing business isn't growing very quickly, the outsourced portion is growing fifty percent per year.
- Educational Purpose. This case can be used as in introduction to IPO valuations. It is designed to demonstrate the use and pitfalls of valuing firms with multiples. Given this is the eighth firm to go public, there are seven other potentially comparable. The case contains enough information to construct a rough DCF. This is useful to demonstrate what assumptions must be implicit in the multiples to arrive at the same valuation. Finally, I find it useful to discuss the idea of mispriced equity (Myers/Majluf, 1984). Since there seems to be evidence that the market price of equity in this industry is not sustainable.
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Last Revised: April 26,