Instructions for Case 3 – Capital Structure – Dominion Resources: Cove Point
Case material
Darden case UVA-F-1740 rev Feb. 18, 2016 and supporting Excel spreadsheet UVA-F-1740X (see links in D2L). Delivery and Deadline
The report in a single pdf file must be submitted to the corresponding dropbox in the D2L course website by no later than start of class on Nov. 5, 2018. No points toward course grade will be earned for a late submission.
Format of Report
The report must i) address the below noted issues (not necessarily sequentially, but through the narrative of the report) and ii) follow an executive summary format (up to two pages for text and up to five pages for supplementary material like tables and figures). In general, such reports follow a logical sequence, notably i) the identification of the key issues, ii) the recommendations, iii) the data and analytical technique(s) used (inclusive of key assumptions, if any), iv) the major findings of the analysis.
Presentation
Groups 4 and 5 will present their findings and recommendations in class on Nov. 5, 2018. In the allowed 20 minutes, each presentation shall succinctly, but convincingly and professionally, convey the key points of the report to an audience made-up of the top executives of the firm (or key shareholders, as the case maybe).
Issues and questions to be addressed in the narrative
- What kind of company is Dominion Resources Inc.? (hint: strategic focus, risk profile, beta,size)
- Any indications that Dominion caters to specific investors? (debtholders and shareholders), while, in return, what capital markets expect of Dominion? (hint: does Dominion has explicit financial strategy and goals, what about its credit rating, what the CEO has been trying to achieve for sometime?)
- Is the Cove Point project within the core business of Dominion? Does the Cove Point project appear to have higher/same/lower risk profile than Dominion itself? Any indications that some business risks inherent to such LNG liquidation project have been completely mitigated? (and if so, how andwhy)
- Under MM, capital structure is irrelevant. However, the Cove Point project is seemingly triggering ‘capital structureissues’ at Dominion: what are those issues and why they matter? Any countervailing forces at play?
- Summarize the range of funding strategies available to Dominion. (hint: qualitatively compare – pros and cons – the potential outcomes of an ‘all-debt’ strategy for Cove Point versus a ‘debt-and-equity’strategy)
- Quantify, to the extent possible, and rank an ‘all-debt’ strategy, a ‘debt-and-equity’ strategy, as well as the option of abandoning or postponing the
- What comprehensive financing strategy do you recommend to secure funding for the project, and why?Hints
- EPS is an accounting figure and should not be the prime consideration for capital spending
V1 September 16, 2018
