Chapter 17: Finance and Corporate Strategy

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Presentation transcript:

Chapter 17: Finance and Corporate Strategy Objective Understanding: Mergers & Acquisitions Spinoffs Real Options Copyright © Prentice Hall Inc. 2000. Author: Nick Bagley, bdellaSoft, Inc.

Chapter 17 Contents 17.1 Mergers and Acquisitions 17.2 Spinoffs 17.3 Investing in Real Options

Derwyn Productions: Decision Tree (yes, no) (Probability = 0.5) Make the movie? (NPV $4 Million) Book a Success? (Probability = 0.5) Make the Movie? (NPV -$4 Million) Buy the movie rights to book? (Cost $1 Million)

Raider’s Takeover of Target Using Options: Computation Observe that the Targets Future is equal to the option’s strike, so the simplified BS equation may be used The NPV of the investment is therefore $(8-6) millions = $2 millions (do it) The premium distributed to the shareholders I f the premium is retained, then the forward value of the firm will be about $114.46 million (forgetting tax)