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

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

3. 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)

4. 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 $ million (forgetting tax)