E.I. du Pont de Nemours & Co.: Titanium Dioxide

W. Carl  Kester; Robert R. Glauber; David W. Mullins Jr.; Stacy S. Dick

Case | HBS Case Collection | February 1984 (Revised February 1986)

E.I. du Pont de Nemours & Co.: Titanium Dioxide

by W. Carl Kester, Robert R. Glauber, David W. Mullins Jr. and Stacy S. Dick

Abstract

Disequilibrium in the $350 million TiO2 market has prompted Du Pont's Pigments Department to develop two strategies for competing in this market in the future. The growth strategy has a smaller internal rate of return than the alternative strategy due to large capital outlays in early years and positive cash flows arising only in later years. However, it is the more valuable project on a net present value basis for all discount rates less than 21%. Students are faced with the task of converting strategic plans and objectives into free cash flow projections and determining a breakeven discount rate between these mutually exclusive projects. A decision about which strategy to pursue must then be made. Rewritten version of an earlier case by the same author.

Keywords: Forecasting and Prediction; Cash Flow; Investment Return; Growth and Development Strategy; Strategic Planning; Projects; Chemical Industry;

Language: English

Format: Print

7 pages

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Citation:

Kester, W. Carl, Robert R. Glauber, David W. Mullins Jr., and Stacy S. Dick. "E.I. du Pont de Nemours & Co.: Titanium Dioxide." Harvard Business School Case 284-066, February 1984. (Revised February 1986.)

In March 2013, Apple Computer has a very large cash balance, and is under pressure to return cash to shareholders. Hedge fund manager David Einhorn thinks Apple can "unlock value" by issuing perpetual preferred stock, dubbed iPrefs. Henry Blodget, CEO of Business Insider, disagrees, saying "you can't just wave your magic wand and make something of nothing." This short case is designed to support a discussion of "perfect" markets and the Modigliani-Miller capital structure irrelevance propositions. The case focuses on two questions: (1) From a shareholder's perspective, how is Apple's cash different from cash in a bank or money market account? (2) Can Apple create significant value for shareholders by splitting each common share into an iPref plus a common share?

Case | HBS Case Collection | January 2018 (Revised December 2018)

Capital Allocation at HCA

W. Carl Kester and Emily R. McComb

In early 2017, HCA Holdings, an investor-owned hospital management company, faced a strategically important capital allocation decision. After the exit of its private equity sponsors in 2016, HCA had to determine how best to allocate its substantial annual free cash flows among several competing alternatives. Equity analysts and some mutual fund investors were clamoring for the company to initiate regular quarterly dividends, while some other hedge fund investors were eager to see more share repurchases. Other choices being advocated by various parties included reducing leverage to improve HCA's credit rating to investment grade, spurring growth by initiating a major acquisition program or reinvesting heavily in existing markets to enhance HCA's strong competitive position. These choices had to be made in the face of uncertainty about the future of healthcare regulation and tax policy following the 2016 U.S. presidential election and in the context of its closest publicly traded peers struggling with heavy debt burdens. HCA's capital allocation choices would be crucial to its ability to provide high quality health care to patients, implement its corporate strategy, and deliver value to shareholders.

Keywords: capital allocation; cash distribution policy; dividends; Share Repurchases; growth strategy and execution; growth investing; Capital expenditures; debt management; Debt reduction; debt policy; hospital management; investor-owned hospital chains; Capital Budgeting; Capital Structure; Cash Flow; Corporate Finance; Decision Choices and Conditions; Health Industry; United States;

Citation:

Kester, W. Carl, and Emily R. McComb. "Capital Allocation at HCA." Harvard Business School Case 218-039, January 2018. (Revised December 2018.) View Details

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E.I. du Pont de Nemours & Co.: Titanium Dioxide

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