FNCE20005 Lecture Notes - Lecture 9: Market Risk, Net Present Value, Discounted Cash Flow
1 Aug 2018
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Summary of topics viii and ix: economic evaluation of takeovers and payment methods in takeovers. If the target is a listed company, the evidence on market efficiency shows that the (cid:373)a(cid:396)ket (cid:272)apitalisatio(cid:374) of the (cid:272)o(cid:373)pa(cid:374)(cid:455)"s se(cid:272)u(cid:396)ities should (cid:271)e a(cid:374) u(cid:374)(cid:271)iased esti(cid:373)ate of. Vt, so the main emphasis should be on estimating the gain: cases with cash bid. It is necessary to focus on the incremental cash flow effects of the takeover: sales revenue, proceeds from disposal of surplus assets. Incremental outflows: operating costs, taxes paid, capital investment to upgrade existing assets or acquire new assets, estimations over takeover gains, company a takeover company t, gain= (cid:4666)+(cid:4667)= , net cost=cash paid , =gain-net cost= (cid:4666)cash paid (cid:4667) independent entity. Increase in earnings per share (eps: a forecast increase in eps does not automatically indicate the presence of synergies nor of value creation for bidder shareholders.
