FINA 470 Lecture Notes - Lecture 13: Asset, Joint Venture, Net Present Value
5 Mar 2016
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Document Summary
Npv allows each party to evaluate whether cash flows of joint venture exceed costs to them. Profit sharing should be proportional pure equity contract, where each contributes to portion of investment. License contract, where lump sum fee and/or royalties are paid to licensor. Payments are subtracted from cash flow and what is shared between proportional shareholders based on investment. Can bring in an intangible asset at a negotiated value, whereby the party will receive greater cash flow than initial investment. Issue on how should be negotiated given international restrictions. Crucial issue is how to share synergies above combined pv of joint venture. Easy way is to share gains equally. 1) bundled or branch version, project is assumed to be carried out in form of branch where focus is on economics. 2) unbundling stage, tax implications of various intercompany financial arrangements are considered. 3) adjustments for the effect of external financing.
