ABSTRACT

The financial analysts of AlbAm, a company in the auto parts industry, have to evaluate two acquisition opportunities (Cardblue and Garciadores). The objective of the case is to serve as an opportunity for students to experience an investment decision through economic profit. A superficial analysis will certainly lead to a mistaken decision. Considering all aspects of the case, one will come up with a solution that may surprise some students as the best managed company will not be the best investment opportunity. The case can also be used to discuss the superficiality of the adoption of EBITDA as a managerial metric compared to a value added metric (economic profit) - the best solution is not the one that generates the largest increase in EBITDA. The case can be used in finance courses (corporate finance or valuation) in undergraduate, graduate or specialization programs. All companies and people described herein are fictitious.

Keywords:
economic profit; residual income; EVA^(r); valuation; teaching case