Questions: Below you will find a number of questions that I want you to address in your analysis (approximate % weighting of each question is provided in parentheses). 1. Evaluate Chrysler’s past performance. Is there evidence of mismanagement? (25%)

a. Evaluate Chrysler’s financial and operating performance between 1980-1992. What financial and investment policies did they pursue and why? How successful were they?

b. What should Chrysler’s capital structure look like? What payout policies should they pursue? How does that compare with the policies pursued by current management?

2. What is the intrinsic value of a share of Chrysler stock? How does that value compare to

the market’s valuation? (45%) • When it comes to the capital structure assumptions, one can imagine a number of

different alternatives, for example 1. Assume that the firms debt will be kept at some constant amount D. 2. Assume that Chrysler will follow some specific borrowing and repayment

schedule for a number of years, after which the leverage policy will be kept constant.

3. Evaluate the structure of Kerkorian’s proposed deal in detail. Does it make sense? What

risks are involved? Use the downturn of 1988-1991 to model another downturn scenario. (30%)

Assumptions:

• Market risk premium: 6% • Tax rate: 39% • Deferred taxes should be added back, since it is a non-cash expense. (This is tax that

we owe, but do not presently have to pay to the IRS) • Equity in unconsolidated subsidiaries is strictly speaking not a cash income, which

implies that it is not part of the free cash flow. The equity stake is valuable, however, and should therefore be added to the value of the firm somehow.

If you need to make additional assumptions, please state them clearly and motivate your choices.

Only use handouts or material provided and complete the questions, and the spreadsheet

• Do not use outside historical or industry information. No web resources!
• Answers should be typed, 1.5-spaced, 11p fonts, and at most 8 pages of text. Page margins should be at least 2.5 cm (top, bottom, left, right). Numerical calculations and spreadsheets can be added as exhibits.
• Be sure to clearly state and motivate any assumptions and calculations you make.
• If you feel that something is not clear or that you need to make some additional assumptions to answer a question, state so clearly on the exam. For fairness reasons, questions regarding the exam cannot be answered during the exam time.
• Try to be succinct and to the point in your arguments. To obtain a high score, your report should also be well-structured and well-formulated.

You should include the calculations in your word document in an appendix, but also show these calculations in a separate excel file.