capital budgeting

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    capital budgeting

    The Cost of CapitalThe Top 10 Things To Consider When Making A Capital Budgeting or Investment DecisionInflation and Financial Decisions

    The Capital Budgeting Decision
    Now, Suppose Google (http://finance.yahoo.com/q?s=goog&ql=1) is considering a new project that will cost $1,750,000 (initial cash outflow). The company has provided the following cash flow figures to you:
    Year Cash Flow
    0 -$1,750,000
    1 350,000
    2 630,000
    3 700,000
    4 550,000
    5 850,000
    If Google’s cost of capital (discount rate) is 14%, what is the project’s net present value? Based on your analysis and findings, what would you recommend to the executives and the shareholders of Google? Should the project be accepted? The shareholders of Google would also like to know the meaning of NPV concept.
    You may use the following steps to calculate NPV:
    1) Calculate present value (PV) of cash inflow (CF)
    PV of CF = CF1 / (1+r)1 + CF2 / (1+r)2 + CF3 / (1+r)3 + CF4 / (1+r)4 + CF5 / (1+r)5
    2) Calculate NPV
    NPV = Total PV of CF – Initial cash outflow
    or
    -Initial cash outflow + Total PV of CF
    r = Discount rate (14%)
    If you do not know how to use calculator, please use the present value tables.
    Brealey, R.A., Myers, S.C., & Allen, F. (2005). Principles of corporate finance, 8th Edition. The McGraw-Hill. Retrieved May, 2012, fromhttp://jcooney.ba.ttu.edu/fin3322/Brealey%20Files/Appendix%20A%20-%20Present%20Value%20Tables.pdf (Please use Table 1)
    Part II:
    Rumors that Google is Considering Acquiring Groupon
    Rumors about potential mergers and acquisitions are often a hot topic in the business press. There are rumors that Google is considering acquiring Groupon (http://finance.yahoo.com/q?s=GRPN&ql=0).
    As you know from reading the material in the background materials, mergers and acquisitions can potentially bring about great rewards but also can potentially bring great risks and pitfalls. For this assignment, do some research concerning the arguments both for and against such an acquisition from a financial perspective. For this module we are not so concerned with how consumers may fair, as this is an issue for the government to consider if they have to approve this acquisition. Instead you are considering this from the point of view of whether or not such an acquisition would be a profitable undertaking that would add value to the shareholders of two corporations (Google and Groupon).
    The following article provides information on Google’s potential acquisition of Groupon:
    Lachapelle, T. (2012). Buying groupon hard for anyone as growth slows: real m&a. Retrieved December, 2012 from http://www.bloomberg.com/news/2012-12-11/buying-groupon-hard-for-anyone-as-growth-slows-real-m-a.html?link=mktw

    Use Proquest, EbscoWeb, and other sources in the Cyberlibrary. Use various internet search engines such as news.google.com for the latest news on this acquisition. Then write a 6 page report for the shareholders of Google and Groupon by answering the following questions and the questions in part I:
    1) Do you think Google’s potential acquistion of Groupon would add value to the shareholders of both corporations? Why or why not?
    2) Based on your analysis and findings (Part I and Part II), what would you recommend to the shareholders of Google and Groupon? Please explain your reasoning.
    The main focus of this assignment will be answering the questions above and the questions in part I.
    In your answers to the primary questions in part II, please respond to following issues:
    ?The impact on Google shareholders
    ?The impact on Groupon shareholders
    ?The financial conditions of both corporations (do not forget to consider the new project proposed by Google in part I)
    ?Why might one combined Google/Groupon company be more profitable than if they remained separate companies? In general, what makes an acquisition successful?
    ?Potential pitfalls – might the combined entity actually be less profitable than either company operating independently? What are the risk factors with this potential acquisition?
    In addition to making use of concepts from the background materials for this module, feel free to use concepts from Modules 1-4 as well.
    3) What do you perceive you have learned in the Module 5 Case Assignment? Which of the following learning objectives do you feel you have mastered?
    ¤Describe and apply net present value (NPV) method to make capital budgeting decisions
    ¤Identify success factors in mergers and acquisitions
    ¤Explain and discuss financing options for financing mergers and acquisitions
    ¤Apply principles of risk and valuation analysis to mergers and acquisitions

    Provide a brief synopsis or conclusion of this assignment.
    Note: Proper citations and references are required. You must use the sources below in addition to the sources you find on your own for proper citations and references, and include them all on the references page.
    McClure, B. (2012). Mergers and acquisitions. Investopedia. Retrieved May 2012 from http://www.investopedia.com/university/mergers/
    The following article is useful to understand the determinants of mergers and acquisitions:
    Erdogan, A.I. (2012). The determinants of mergers and acquisitions: Evidence from Turkey. International Journal of Economics and Finance, 4(4), 72-77. Retrieved May 2012 from http://www.ccsenet.org/journal/index.php/ijef/article/view/15911
    The following sources, though not recent, are useful to answer the questions:
    Gaughan, P. (2001). Mergers and acquisitions: An overview. Retrieved May 2012 from http://media.wiley.com/product_data/excerpt/79/04714143/0471414379.pdf
    Expectations Investing (2001). How to analyze an M&A deal. Retrieved May 2012 from http://www.expectationsinvesting.com/tutorial10.shtml
    Albanesius, C. (2007). Would a Microsoft-Yahoo merger work? PC World. Retrieved May 2012 from http://www.pcmag.com/article2/0,1895,2126193,00.asp
    The following Wikipedia article may be helpful to understand the concept of NPV:
    En.wikipedia.org (2012). Net present value. Retrieved May 2012 from http://en.wikipedia.org/wiki/Net_present_value
    Chapter 9 of the following textbook can also be helpful to understand capital budgeting process:
    Paramasivan, C. & Subramanian, T. (2009). Financial management. New Age International. (Read Chapter 9 – Page 128)
    Chapter 4 (pages 125-180) and Chapter 14 (pages 538-594) of the following textbook can also be helpful in understanding Mergers and Acquisitions:
    Gaughan, P.A. (2010). Mergers, Acquisitions, and Corporate Restructurings (5th Edition). Wiley, Hoboken, NJ, USA.

    Assignment Expectations:
    • Describe the purpose of the paper and provide a conclusion. An introduction and a conclusion are important because many busy individuals in the business environment may only read the first and the last paragraph. If those paragraphs are not interesting, they never read the body of the paper.
    • Answer the SLP questions clearly and provide necessary details.
    • Write clearly and correctly—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
    • Provide citations to support your argument and references on a separate page. Use APA format to provide citations and references [http://owl.english.purdue.edu/owl/resource/560/01/].
    • Answer all the SLP questions in an essay format. Do not type questions in the paper.
    • Type and double-space the paper.
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