Case Studies – General Introduction
Many case studies written by HBS and at other universities are written to praise and worship managers of the business in question. The cases are often written by former students who have gone on to a company and want to demonstrate to former professors and prospective students their success. After writing the case, the author may return to his or her business school as a hero after students have discussed the insight and innovation of the management. A good example of this phenomena is the number of HBS case studies written about Enron and how the company was considered one of the most innovative companies in America.
Discussion of the case studies below takes a very different philosophy. The cases concentrate on analysis of mistakes that were made and what are some of the common themes of mistakes made in the financial analysis of the various investments. Cases are often relatively old so that you can see what went wrong and hopefully why things fell appart. Some of the cases such as Iridium, Petrozuata, Quezon and Dahbol use information from the HBS cases (the case write-ups are not included on the site because of copyright rules). However, financial models associated with some of the cases are included.
Introduction to Case Studies – Housing Values, Loans and Structured Finance in U.S. Housing Crisis
Case studies are introduced by working through analytical mistakes that were made in the U.S. housing crisis. As for all of the cases, a write-up is provided followed by videos and excel files. The excel exercises for the housing crisis discussion include techniques to download economic data into spreadsheets and how to create a financial model. Videos that demonstrate the analytical analysis are included in the table above.
| Subject | Excel File | Video Link | Chapter Reference | Page Reference | ||||
| Creating Strutured Finance Model | CDO Exercise 1 | https://www.youtube.com/watch?v=6giYxjcmCUU | Chapter 2 | 40 | ||||
| Two Way Data Table with Structured Finance Model | CDO Exercise 2 | https://www.youtube.com/watch?v=iGnjWYW-zIc | Chapter 2 | 40 | ||||
| One Way Data Table with Structured Finance Model | CDO Exercise 2 | https://www.youtube.com/watch?v=Tip6i7pYEt4 | Chapter 2 | 40 | ||||
| Break Even Analyis with Strctured Finance Model | CDO Exercise 3 | https://www.youtube.com/watch?v=TSDpLt0-k3I | Chapter 2 | 40 | ||||
| Scenario Analysis with Structured Finance Model | CDO Exercise 4 | Chapter 2 | 40 | |||||
| Tornado Analysis with Structured Finance Model | CDO Exercise 5 | Chapter 2 | 40 | |||||
| Downloading Data on Saudi Stock Bubble | Saudi Stocks | https://www.youtube.com/watch?v=C_Sz6-iO-OQ | Chapter 2 | 40 | ||||
| Downloading Data on House Prices and Demand 1 | Housing Data 1 | https://www.youtube.com/watch?v=U-EJ2D1JVpM | Chapter 16 | 193 | ||||
| Clearing Sheets to Enable Updating of Data | Housing Data 1 | https://www.youtube.com/watch?v=z-e1zefhZoc | Chapter 16 | 193 | ||||
| Using Match, Index and Indirect to Summarise Downloaded Data | Housing Data | https://www.youtube.com/watch?v=PgLSc2AvU-Y | Chapter 16 | 193 | ||||
| Creating Single Graph with #N/A and Index | Housing Data | https://www.youtube.com/watch?v=sGDDr7egXuo | Chapter 16 | 193 | ||||
| Adjusting Nominal Data for Inflation | Housing Data | https://www.youtube.com/watch?v=L2TM2VG72MU | Chapter 16 | 193 | ||||
| Creating Graph with multiple Serise with TRUE/FALSE | Housing Data | https://www.youtube.com/watch?v=c8k8LrJobX4 | Chapter 16 | 193 | ||||
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Petrozuata – Oil Project Finance
Petrozuata is a wonderful case because it was touted as such a successful case study in use of project finance to gain a low cost of capital and was supposedly structured so well to manage risk. But five years after commercial operation the project was nationalized. This is after taxes were dramatically increased on the project. The write-up below and the associated videos provide a different perspective on the case than the typical lauding of Conoco management and financial institutions that structured the transaction.
Discussion of the case studies below takes a very different philosophy. The cases concentrate on analysis of mistakes that were made and what are some of the common themes of mistakes made in the financial analysis of the various investments. Cases are often relatively old so that you can see what went wrong and hopefully why things fell apart.
Here is my write-up of the case.
| Subject | Excel File | Video Link | Chapter Reference | Page Reference | ||||
| Creating Graph of Cash Flow and Debt Service | Petrozuata Cash Flow and Debt Service | https://www.youtube.com/watch?v=idU6FQ8syFQ | ||||||
| Graphing Oil Prices in Time Line | Petrozuata Time Line | https://www.youtube.com/watch?v=gFLN8D_G0h0 | 2 | 40 | ||||
| Computing Production Cost to Gauge Political Risk | Petrozuata Production Cost | https://www.youtube.com/watch?v=fJVKMmYmFpU | ||||||
| Equity IRR and Different Exit Points with High IRR | Petrozuata IRR | https://www.youtube.com/watch?v=BDi0tJotSpk | ||||||
| Equity IRR with Sale of Project and Changing Risk | Petrozuata Changing Risk | https://www.youtube.com/watch?v=uk_W4cGwrh8 | ||||||
| Computing Risk Premium Earned | Petrozuata Risk Premium Method | https://www.youtube.com/watch?v=T_SxwJJYPBM | ||||||
| Short-cut keys and Goal Seek Macro | Political Risk.xlsm | https://www.youtube.com/watch?v=DG9n_t2YNUk | Chapter 4 | 40 | ||||
| Implied Probability on Nationalization with Different Risk Premia | Political Risk.xlsm | https://www.youtube.com/watch?v=KFzceICWujI | ||||||
| Simle Time Series Analysis of Oil | Petrozuata Monte Carlo.xls | https://www.youtube.com/watch?v=WliOwYepmHo | ||||||
| Monte Carlo Set-up | Petrozuata with Monte Carlo 1.xls | https://www.youtube.com/watch?v=x4bLsnmRjBM | ||||||
| Monte Carlo Simulation with Mean Reversion | Petrozuata with Monte Carlo 2.xls | https://www.youtube.com/watch?v=2mLJEo2ubsw | ||||||
| Graphing Distributions with Monte Carlo Simulation | Petrozuata with Monte Carlo 3.xls | https://www.youtube.com/watch?v=_oVz9TT6a5g | ||||||
| Project Finance Analysis in Petrozuata Case | Petrozuata Analysis.xls | https://www.youtube.com/watch?v=idU6FQ8syFQ | ||||||
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Petrozuata Articles and Resources Other than HBS Case
Dabhol – IPP Analysis and Project Finance
Dahbol is an interesting case because it was first launched as a breakthrough in electricity investment for India and arguably was an important cause of the downfall of Enron. The central issue in the case is whether risk analysis and valuation should have involved contract evaluation and insurance on PPA contracts or whether the ultimate affordability of the produced electricity to ultimate consumers should have been the focus of the analysis. To evaluate the latter issue, costs must be benchmarked and evaluated over time. Much has been written about the political and contractual aspects of the case and some of these articles are replicated below. The focus of the video discussion is how to quantify in a simple manner the question of whether the project could really work.
Here is my write-up of the case.
| IRR Earned from Capacity Charges in Harvard Case Study | IRR Earned from Cap Charge.xlsm | Chapter 6 | ||||||
| Cost of Electricity from Dahbol versus Alternative Power | Cost of Electricity Dabol vs NGCC.xlsm | Chapter 6 | ||||||
| Cost of Out of Order Dispactch | Dispatch Cost.xlsm | Chapter 6 | ||||||
| Required Rate Increase from Project | Off-taker Analysis.xlsm | Chapter 6 | ||||||
| Required Rate Increase with Increased Non-Technical Losses | Loss Effect.xlsm | Chapter 6 | ||||||
| Increase in Costs from Changes in Exchange Rate | India Exchange Rate.xlsm | Chapter 6 | ||||||
| Alternative Evaluation of the Project | Alternative Bid Evaluation.xlsm | Chapter 6 | ||||||
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Dabhol Resources other than three HBS Cases that Support Enron Position
First Solar Case Study (Solar Power and Renewables)
First Solar is a good example of management believing that returns can be maintained in a business with not much competitive advantage. The retrun on investment that was extremely high and supported by subsidy systems early in the solar industry could not be maintained. The idea that the company could make the same kind of returns in other parts of the business was also flawed. The First Solar case is a good way to review the economics of solar power in general and illustrate the importance of financing cost.
Kitty Hawk Merger Case Study
Kitty Hawk is a good example of evaluating a merger case. The company was a Wall Street star. It bought a company that was bigger than itself and had the aggrogant idea that it could fix problems for a company that had different types of planes. The manner in which the analysts did not think about potentital volatility in prices and revenues is a good example of how mistakes can be made.
Irdium Case Study
Following the Crowd and Not Understanding the Difference between Forecasts Founded on Real Historical Data Versus Vague Business Plans
Unlike other case studies that discuss management options and strategies, the Iridum case is an obvious disaster. In the case, various investment banks followed one another which with hindsight were absurd. The case demonstrates that when making forecasts, the importance of objective data rather than opinions of well dressed investment bankers.
One of the basic principles of project finance is that sponsors should be reputable. Even though project finance loans are non-recourse meaning that they cannot be paid from other projects in the portfolio of a company, the reputation of owners is very important. In general, owners get paid after or at a similar rate as lenders meaning that if owners get paid, then lenders will also get paid. Making loans on reputation has always been fundemental to banking. If owners believe there will be enough value in a project to generate a rate of return, then bankers will be paid. The problem with this philosophy is at least twofold. First, it means you are trusting potentially inept and/or corrupt management as to the value of the project. Second, if the project has high expected cash flows, but also a high volatility, the debt to capital ratio may not have enough buffer to withstand declines in value. This was the implicit basis of the Iridum project. In evaluation of the sources and uses for the project, the debt represented 50% of the project cost and the sponsor, Motorola was considered one of the best companies in the Telecommunication industry.
The project had some problems that were know to all of the investors. The phones were large, bulky and expensive to produce; the phones not work in buildings; if business travelers use the phone they would have to carry an additional business. Most importantly, the capacity of the satellites was limited. Quote from case.
Iridium Model
Slides of Selected Case Studies
Eurotunnel
This case is a good example of making evey mistake in the book for Project Finance. Mistakes included horrible structuring of EPC contracts, crazy traffic studies, unconventional technology, no government support and poor analysis of contracts. The first file contains the Eurotunnel Offering Memo which is hard to find on the internet.
A2 Tollway — Modelling and Analysis of Public Private Partnership (Contrast to Eurotunnel)
Sutton Bridge — Project Finance and Merchant Electricity
Southport/Freeport — Project Finance, Cost of Capital and Options
Constellation Energy – Valuation
Quezon Coal Plant Case (Philippines)
Orascom Telecom — Corporate Finance
Merchant Electricity Plant — Cost of Capital
Renewable Case Studies Data
This case study, described in Chapter 1 of the book, includes analysis of valuation using multiples, earnings forecasts, financial statement analysis and acceptance of confusing statemens made by management.