Case Name :      Chestnut Foods

Authors :           Michael J. Schill, Donald Stevenson

Source :             Darden School of Business

Case ID :           UV7014

Discipline :        Accounting

Case Length :    10 pages

Plagiarism : NO (100% Original work)

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 after students have become familiar with the basic techniques for estimating a weighted average cost of capital.”