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Chestnut Foods (A)
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Reference: DARDEN-F-1736-E
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Number of pages: 9
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Publication Date: Aug 6, 2015
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Fecha de edición: May 3, 2021
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Source: Darden University of Virginia (USA)
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Type of Document: Case
Description
After a period of poor stock-market performance, conglomerate Chestnut Foods (Chestnut) faces the acquisition of its stock by an activist investor. The new investor demands the sale of Chestnut’s high-growth division, which contrasts with the CFO’s turnaround plan to expand this same division. To disentangle the way forward for Chestnut, students are invited to grapple with the risk-adjusted performance of each division and the estimation of division-specific hurdle rates. Students learn to appreciate the importance of using risk-adjusted hurdle rates in establishing appropriate investment policy.
This case has been used in Darden's first-year required finance course. It is designed to be used within a module on estimating the cost of capital, but only after students have become familiar with the basic techniques for estimating a weighted average cost of capital. It can be followed by a B case (UVA-F-1974), but it is not necessary; at Darden, the B case is taught in a second-year elective.