Capital Budgeting

Spring 2016
SKK Graduate School of Business
Prof. Hugh H. Kim

Instructions for ALL case assignments:

1.
2.
3.
4.

Each student submits his/her own report (except team presentation assignment).
A volunteering team will present the assignment for credits.
Your report can be either Powerpoint or Word document.
It is also required that you submit Excel spreadsheet that contains your analysis.
The spreadsheet will not be formally graded, but will be checked for accuracy of
your analyses.
5. Include in your report any tables, figures, or other information that you think is
appropriate to support your analysis. Therefore, your written report should be a
stand-alone document that contains all relevant information.
6. Submit both your write-up and spreadsheet model (if any) via email. Both are due
by the beginning of the class.
7. Your report may be subsequently graded for grammar and correct usage of English
language. According to the GSB policy, the final grade for the project may be
impacted by your grade on the writing.

Assignment #1:
Stryker Corporation: In-Sourcing PCBs (HBS 5-209-156)
Questions with DUE DATE: Jan/26/2016, Beginning of the Class (Individual Submission)
1. State the business case for option #3, the PCB In-Sourcing proposal.
2. How would you compare Option #3 to Options #1 and #2? In order to evaluate all possible

options properly, what procedure would you recommend?

Questions with DUE DATE: Jan/26/2016, Beginning of the Class (Team Presentation)
1. Use the projections provided in the case to compute incremental cash flows for the PCB

project, as well as its NPV, IRR and payback period.

2. Based on your analyses, would you recommend that Stryker Instruments fund this project?
3. Conduct a sensitivity-analysis and identify key variables affecting the NPV. If you want to

confirm the validity of your NPV analysis, which variables or assumptions will you
investigate more?

Assignment #2:
E.I. du Pont de Nemours and Co.: Titanium Dioxide (HBS 9-284-066)
Questions with DUE DATE: Jan/28/2016, Beginning of the Class (Individual Submission)
What are Du Pont's competitive advantages in the TiO market as of 1972? How
permanent or defensible are they? What must Du Pont do to retain its competitive
advantages in the future?
2. In terms of future cash flows, how much risk and uncertainty surrounds the estimation
process?
1.

Question with DUE DATE: Jan/28/2016, Beginning of the Class (Team Presentation)
3. Given the forecasts provided in the case, estimate the expected incremental free cash flows
associated with Du Pont's growth-strategy and maintain-strategy for the TiO market.
4. How might competitors respond to Du Pont's choice of either strategy in the TiO market?
What other factors should Du Pont consider in making the decision?
5. What strategy should Du Pont pursue?
Note: In 1972, bond yields and the inflation were approximately as follows:
Long-term treasuries
Aaa corporate bonds
Baa corporate bonds
Inflation rate (CPI)

6.2%
7.2%
7.8%
3.2%