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In each of the
sections listed below, I have placed the materials that we will cover that
week. The articles and problems involve the topic from the previous week. Lecture notes on a new topic are also placed
under the week in which I will present them. Some additional materials that you
may find useful appear at the top of this page.
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WEEK 1 INTRODUCTION TO MARKETS, INTEREST RATES, ETC.
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WEEK 2 TIME VALUE OF MONEY BASICS
Short Discussion Articles on Markets, Interest Rates Etc.
- What does the title of the article refer to?
- What is a liquidity trap and why is it a problem?
- What does the article see as the main U.S. economic problem?
- Why is it likely that we will
see over the coming years more government regulations throughout the
- Why do people hold up the Federal Reserve as a reason that they support more government intervention in the economy (Obama may propose a Healthcare Fed), and why is this a potent problem?
- What is likely to happen to innovation in the economy if government regulations are strengthened? Use your own observations at NU to help answer this question?
- How does Duke Energy use economic information to test and select their business strategy?
- What are the pros and cons of Duke’s strategy of being an energy merchant with half of its revenue generated from trading and marketing energy?
- How successful was Duke’s approach in 2002 and how well do you think it is working in the current economic downturn?
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WEEK 3 MEASURING RISK (and Bond Ratings)
Standard and Poor’s Bond Rating - Notching
Standard and Poor’s Bond Rating - Matrix
Standard and Poor’s Bond Rating - NU
Group Problem on Time Value
Short Discussion Articles on Time Value
- How do some federal and municipal government policies involve time value to encourage homeowners to invest in solar power systems?
- How do some companies that make solar equipment use time value to encourage homeowners to invest in solar power systems?
- What is the advantage of companies’ methods to encourage investment in solar power systems compared to government policies?
- How might a sharp increase in solar power systems in the northeast affect NU and what profitable policies or strategies could NU adopt in response?
- How does the Connecticut efficiency market work?
- Why do you think the state chose the particular financing mechanism for the household market but not for the commercial market?
- Why are some worried about the effects on the market of NU and other utilities?
- If it costs
- If
- In
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WEEK 4 VALUING STOCKS AND BONDS (Case on Bond Ratings)
Group Problem on Risk
Short Discussion Articles on Risk
Semgroup Works to Turn It Around
- What caused Semgroup's financial problems and what additional problems has that brought about?
- How has Semgroup changed its risk management to avoid such problems in the future?
- How can changing Semgroup’s corporate structure help it compete?
- What type of risk must
- What type of risk must
- Suppose that
Nuclear Power
is Headed for a Fight.
- What are the regulatory risks associated with nuclear power plants?
- Why is the risk growing in the northeast, and what implications does it have for NU?
- Most claim that nuclear power is cheap, but what costly risk is not captured in the price of nuclear power?
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WEEK 5 CASE ON STOCK VALUATION
Group Problem on Valuing Stocks and Bonds
Short Discussion Articles on Valuation of Stocks and Bonds
- According to the article, which utilities are most undervalued and why?
- What is enterprise value and how is it used in the article to determine value?
- Why might the claim that utility stocks are undervalue be wrong?
- How should you decide if oil and gas producers are good investments?
- How should you decide if utilities and nuclear companies are good investments?
- How should you decide if alternative energy companies like wind and solar are good investments?
Industry
Splits Over Power Play
- How will
- Why is there a split between
the two largest
- Given the off-on-off-on pattern of regulation, what strategy would you recommend that would best serve the utilities shareholders’ interests?
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WEEK 6 CAPITAL STRUCTURE AND DIVIDEND POLICY
Hand in Take Home Quiz
on Material from Weeks 1, 2, 3
Capital Structure and Dividend Lecture
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WEEK 7 BREAK
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WEEK 8 COST OF CAPITAL
Capital Structure and Dividends Problems
Capital Structure and Dividends Problems Answers
Group Problem on Capital Structure/Dividends
Short Discussion Articles on Capital Structure and Dividend Policy
- Why did Constellation need an infusion of cash and how did the infusion affect its capital structure (i.e. which source of financing increased)?
- How could Constellation have changed its capital structure one year earlier and have avoided some of the problems it faced?
- How did Sempra Energy avoid Constellation’s problem?
- How would Entergy’s spinoff affect its capital structure?
- How has the capital structure of utilities with nuclear plants changed over the last year or two?
- Would shareholders benefit or suffer if the spinoff occurs? Why? How about consumers?
- What does the first article say is the motivation for the NU-NStar merger?
- What does the second article say is the motivation for the NU-NStar merger?
- How might the merger affect NU’s capital structure?
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WEEK 9 CASE ON COST OF CAPITAL and CASE ON DIVIDEND POLICY
Cost of Capital Problems Answers
Group Problem on Cost of Capital
Short Discussion Articles on Cost of Capital
- Why are utilities investing more in transmission lines?
- Consider NU’s experience in
- How is the investment typically financed?
- How do regulators propose to create an incentive for utilities to reduce demand for electricity?
- How might the proposal affect a utility’s cost of capital?
- What are the possible risks to the utility that you see with the proposal, and could it create unintended incentives?
- How might the merger affect Duke’s cost of capital?
- What does the development of new nuclear plants depend on?
- Normally a merger is motivated by cost cutting after the merger. How might the Duke merger differ?
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WEEK 10 BASIC CAPITAL BUDGETING
Basic Capital Budgeting Lecture
Hand in Take Home
Quiz on Material from Weeks 4, 5, 6, 7, 8, 9
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WEEK 11 CALCULATING CASH FLOWS AND NPVs
Basic Capital Budgeting Problems
Basic Capital Budgeting Answers
Short Discussion Articles on Basic Capital Budgeting
- How should Subway decide whether to invest in new ovens and remove old ovens that still work?
- Was the investment by hog farmers in fluorescent bulbs a good one?
- How did the energy management system for Budweiser work and essentially pay for itself in electricity savings?
- Of the new technologies listed, which one looks like the best investment? Why?
- What would make an electric car a good investment?
- What drives many new energy technology investment decisions that is not part of most other technology investment decisions?
- What is the payback period for Wal-Mart’s investments in lighting and air-conditioning replacements?
- Why have some companies been slow to make more energy efficiency investments? Give examples from different industries.
- How can a corporation’s organizational structure thwart energy efficiency investments, and how could a utility like NU help solve the problem and benefit at the same time?
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WEEK 12 Case on NPV
Cash Flows and NPV Problems Answers
Group Problem on Capital Budgeting
Short Discussion Articles on Cash Flows and NPV
- Consider the rate structure
of Georgia Power. How can a consumer in
- Georgia Power says it does not provide consumers pricing information because it was not asked to do so. Why don’t they do it on their own, like the telephone companies do?
- How could utility companies decide whether to invest in advanced usage meters for residential consumers?
Producers
Turning Away from Coal
- How has the cost of pollution control equipment affected electric generation investments?
- How has the recession affected electric generation investment decisions?
- What does Duke's experience with new technology imply for the utility's investment decisions?
- How would you assess the efficiency and success of PG&E’s new light bulb strategy for conserving electricity?
- How would you assess the long term value of investments such as the light bulb subsidy, that is, how secure are the incentive payments?
- Why might subsidizing efficient air conditioning be a better investment and why did PG&E adopt the light bulb strategy instead?
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WEEK 13 BREAK
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WEEK 14 FINANCIAL ANALYSIS AMD PLANNING
Financial Analysis and Planning Lecture
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WEEK 15 WORKING CAPITAL MANAGEMENT
Financial Analysis and Planning Problems
Financial Analysis and Planning Problems Answers
Short Discussion Articles on Financial Analysis and Planning
- How should the expected growth in wind and solar generation affect NU’s transmission equipment investment plans?
- Why should plans to expand the grid start early?
- What hurdles do utilities face when proposing to build new transmission lines?
- Why is Con Ed upgrading its
grid in
- Why are utilities “notoriously cautious about new technology”?
- Could NU find superconducting cable useful for some of its territory?
What
Utilities Learned from Smart Meters
- How would you figure out whether smart meters are good investments for NU?
- What seems to be the best strategy, and what problems must be solved to get consumers to accept smart meters?
- Assume all consumers have smart meters, how might they affect NU's financial planning?
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WEEK 16 CASE ON WORKING CAPITAL and ANALYSIS OF CFO SURVEY DATA
Quiz on Material
from Weeks 10, 11, 12, 13, 14, 15
Short Discussion Articles on Working Capital Management
- With more delinquent bills, how should NU change its working capital strategy?
- How can NU estimate an expected number of delinquent bills for its service areas?
- How is NU trying to deal with delinquent bills and how can it take advantage of government programs that assist low income customers?
- Why are there likely to be more delinquent bills during the winter in the Northeast?
- How should NU adjust its working capital borrowing to account for the seasonal problem that is exacerbated by economic conditions?
- What variables can NU use to predict the amount of delinquent bills during the winter?
- Why are some firms drawing down revolving loans, even if they don’t need all of the cash?
- How would you recommend that NU manage its revolving loans?
- Is there a better alternative financing tool than revolving loans to handle the cash flow uncertainty?
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