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Suggested Questions for Advance Assignment to Students

1. What can the historical income statements (case Exhibit 1) and balance sheets (case
Exhibit 2) tell you about the financial health and current condition of Krispy Kreme
Doughnuts, Inc.?
2. How can financial ratios extend your understanding of financial statements? What
questions do the time series of ratios in case Exhibit 7 raise? What questions do the ratios
on peer firms in case Exhibits 8 and 9 raise?
3. Is Krispy Kreme financially healthy at year-end 2004?
4. In light of your answer to question 3, what accounts for the firms recent share price
5. What is the source of intrinsic investment value in this company? Does this source appear
on the financial statements?
Suggested Questions for Advance Assignment to Students
1. Prepare to describe in class the competition in the overnight package delivery industry,
and the strategies by which those two firms are meeting the competition. What are the
enabling and inhibiting factors facing the two firms as they pursue their goals? Do you
think that either firm can attain a sustainable competitive advantage in this business?
2. Why did FedExs stock price outstrip UPSs during the initiation of talks over liberalized
air cargo routes between the U.S. and China? Assuming a perfectly efficient stock
market, how might one interpret a 14% increase in FedExs market value of equity?
3. How have FedEx and UPS performed since the early 1990s? Which firm is doing better?
In class, prepare to discuss the insights you derived from the two firms financial
statements, financial ratios, stock-price performance, and economic profit (economic
value added or EVA). Also, prepare to describe how EVA is estimated, and its strengths
and weaknesses as a measure of performance.
4. If you had to identify one of those companies as excellent, which company would you
choose? On what basis did you make your decision? More generally, what is excellence
in business?


Advance Assignment to Students
1. Assess the current financial health and recent financial performance of the company.
What strengths and/or weaknesses would you highlight to Adeline Koh?
2. Forecast the firms financial statements for 2002 and 2003. What will be the external
financing requirements of the firm in those years? Can the firm repay its loan within a
reasonable period?
3. What are the key driver assumptions of the firms future financial performance? What are
the managerial implications of those key drivers? That is, what aspects of the firms
activities should Koh focus on especially?
4. What is Star Rivers weighted-average cost of capital (WACC)? What methods did you
use to estimate WACC? What are the key assumptions that especially influence WACC?
5. What are the free cash flows of the packaging machine investment? Should Koh approve
the investment?
Suggested Advance Study Questions
1. What is the WACC and why is it important to estimate a firms cost of capital? Do you
agree with Joanna Cohens WACC calculation? Why or why not?
2. If you do not agree with Cohens analysis, calculate your own WACC for Nike and be
prepared to justify your assumptions.
3. Calculate the costs of equity using CAPM, the dividend discount model, and the earnings
capitalization ratio. What are the advantages and disadvantages of each method?
4. What should Kimi Ford recommend regarding an investment in Nike?
Suggestion for Advance Assignment to Students
1. In what ways can Susan Collyns facilitate the success of CPK?
2. Using the scenarios in case Exhibit 9, what role does leverage play in affecting the return
on equity (ROE) for CPK? What about the cost of capital? In assessing the effect of
leverage on the cost of capital, you may assume that a firms CAPM beta can be modeled
in the following manner: L = U[1 + (1 T)D/E], where U is the firms beta without
leverage, T is the corporate income tax rate, D is the market value of debt, and E is the

market value of equity.

3. Based on the analysis in case Exhibit 9, what is the anticipated CPK share price under
each scenario? How many shares will CPK be likely to repurchase under each scenario?
What role does the tax deductibility of interest play in encouraging debt financing at
4. What capital structure policy would you recommend for CPK?