QUESTIONS
1) Evaluate Cryslers financial and operating performance between 1980-1992. What financial
and investment policies did they pursue and why? How successful were they? (~10%)
2) What should Chrysler’s capital structure look like? What payout policies should they pursue?
How does that compare with the policies pursued by current management? (~30%)
3) What is the intrinsic (DCF) value of a share of Crysler stock? How does that value compare
to the market’s valuation? (~30%)
4) Evaluate the structure of Kerkorian's proposed deal in detail. Does it make sense? Would
there be any value created by a takeover? What risks are involved? What would you do
differently? (~25%)
5) If you were Eaton, how would you respond to the takeover deal? If you were a shareholder,
how would you like Eaton to respond? (~5%)
Note: The %'s are indicative on roughly how much weight is put each of the questions in
grading.
Additional assumptions and clarifications:
The exhibit spreadsheet differs slightly from the exhibits in the case and also contain
some additional information. You should work with the numbers in the spreadsheet to
the extent they differ from the ones in the case.
You can assume that car companies (such as Chrysler, GM, and Ford) need to hold cash
equal to 4.5% of sales for operating purposes. Changes in operating cash balances are
incorporated in the projected increases in net working capital given in exhibit 12.
In exhibit 12, deferred taxes are a non-cash item that should be added back to cash flows
(as seen from the exhibit). You can assume that deferred tax add-backs are equal to zero
in the long-run.
You can assume that Chrysler generates an interest income of 2.5% on their cash and
marketable securities.
Some additional details on the proposed financing of the takeover, including the terms on
the bank loan, can be found in the exhibit “Buyout deal structure” in the spreadsheet.
1) Evaluate Cryslers financial and operating performance between 1980-1992. What financial
and investment policies did they pursue and why? How successful were they? (~10%)
2) What should Chrysler’s capital structure look like? What payout policies should they pursue?
How does that compare with the policies pursued by current management? (~30%)
3) What is the intrinsic (DCF) value of a share of Crysler stock? How does that value compare
to the market’s valuation? (~30%)
4) Evaluate the structure of Kerkorian's proposed deal in detail. Does it make sense? Would
there be any value created by a takeover? What risks are involved? What would you do
differently? (~25%)
5) If you were Eaton, how would you respond to the takeover deal? If you were a shareholder,
how would you like Eaton to respond? (~5%)
Note: The %'s are indicative on roughly how much weight is put each of the questions in
grading.
Additional assumptions and clarifications:
The exhibit spreadsheet differs slightly from the exhibits in the case and also contain
some additional information. You should work with the numbers in the spreadsheet to
the extent they differ from the ones in the case.
You can assume that car companies (such as Chrysler, GM, and Ford) need to hold cash
equal to 4.5% of sales for operating purposes. Changes in operating cash balances are
incorporated in the projected increases in net working capital given in exhibit 12.
In exhibit 12, deferred taxes are a non-cash item that should be added back to cash flows
(as seen from the exhibit). You can assume that deferred tax add-backs are equal to zero
in the long-run.
You can assume that Chrysler generates an interest income of 2.5% on their cash and
marketable securities.
Some additional details on the proposed financing of the takeover, including the terms on
the bank loan, can be found in the exhibit “Buyout deal structure” in the spreadsheet.
