Assignment Prompt & Instructions
tutor discussion and response
**files (3)**
– ## DiscussionPromptweek7.docx
– Business_sustainability_manage1.pdf
– Urban_tourism_and_climate_chan.pdf
**## DiscussionPromptweek7.docx**
**Discussion Prompt:**
In this Discussion, please reflect on the week's topics. Choose a topic from Chapters 18, 19, or 21.
Your research should provide a measure of information about the topic’s significance to the current business climate. At least two reference sources should be used to support a substantive and detailed response. Make sure to give credit to your sources, though formal citations are not required. Please be thorough and respectful on the discussion board. Check your grammar, punctuation and spelling before posting.
Reference sources must be limited to the Wall Street Journal, Financial Times, New York Times, Barron’s, Investors’ Business Daily, The Economist, or an academic journal article from a respected accounting or finance journal.
29.1 The Basic Forms of Acquisitions Acquisitions follow one of three basic forms: merger or consolidation, acquisition of stock, and acquisition of assets. MERGER OR CONSOLIDATION A merger refers to the absorption of one firm by another. The acquiring firm retains its name and identity, and it acquires all of the assets and liabilities of the acquired firm. After a merger, the acquired firm ceases to exist as a separate business entity. A consolidation is the same as a merger except that an entirely new firm is created. In a consolidation, both the acquiring firm and the acquired firm terminate their previous legal existence and become part of the new firm. EXAMPLE 29.1 Merger Basics Suppose Firm A acquires Firm B in a merger. Further, suppose Firm B’s shareholders are given one share of Firm A’s stock in exchange for two shares of Firm B’s stock. From a legal standpoint, Firm A’s shareholders are not directly affected by the merger. However, Firm B’s shares cease to exist. In a consolidation, the shareholders of Firm A and Firm B exchange their shares for shares of a new firm (e.g., Firm C). Page 887 Because of the similarities between mergers and consolidations, we shall refer to both types of reorganization as mergers. Here are two important points about mergers and consolidations: A merger is legally straightforward and does not cost as much as other forms of acquisition. It avoids the necessity of transferring title of each individual asset of the acquired firm to the acquiring firm. The stockholders of each firm must approve a merger.1 Typically, two-thirds of share owners must vote in favor for it to be approved. In addition, shareholders of the acquired firm have appraisal rights. This means that they can demand that the acquiring firm purchase their shares at a fair value. Often, the acquiring firm and the dissenting shareholders of the acquired firm cannot agree on a fair value, which results in expensive legal proceedings. ACQUISITION OF STOCK A second way to acquire another firm is to purchase the firm’s voting stock in exchange for cash, shares of stock, or other securities. This process may start as a private offer from the management of one firm to another. At some point, the offer is taken directly to the selling firm’s stockholders, often by a tender offer. A tender offer is a public offer to buy shares of a target firm. It is made by one firm directly to the shareholders of another firm. The offer is communicated to the target firm’s shareholders by public announcements such as newspaper advertisements. Sometimes a general mailing is used in a tender offer. However, a general mailing is difficult because the names and addresses of the stockholders of record are not usually available. The following factors are involved in choosing between an acquisition of stock and a merger: In an acquisition of stock, shareholder meetings need not be held and a vote is not required. If the shareholders of the target firm do not like the offer, they are not required to accept it and need not tender their shares. In an acquisition of stock, the bidding firm can deal directly with the shareholders of a target firm via a tender offer. The target firm’s management and board of directors are bypassed. Target managers often resist acquisition. In such cases, acquisition of stock circumvents the target firm’s management. Resistance by the target firm’s management often makes the cost of acquisition of stock higher than the cost by merger. Frequently, a minority of shareholders will hold out in a tender offer and, thus, the target firm cannot be completely absorbed. Complete absorption of one firm by another requires a merger. Many acquisitions of stock end with a formal merger. ACQUISITION OF ASSETS One firm can acquire another by buying all of its assets. The selling firm does not necessarily vanish because its “shell” can be retained. A formal vote of the target stockholders is required in an acquisition of assets. An advantage here is that although the acquirer is often left with minority shareholders in an acquisition of stock, this does not happen in an acquisition of assets. Minority shareholders often present problems, such as holdouts. However, asset acquisition involves transferring title to individual assets, which can be costly. A CLASSIFICATION SCHEME Page 888 Financial analysts have typically classified acquisitions into three types: Horizontal acquisition: Here, both the acquirer and acquired are in the same industry. Capital One’s acquisition of Discover Financial Services, which we mentioned at the beginning of the chapter, would be a horizontal acquisition. Vertical acquisition: A vertical acquisition involves firms at different steps of the production process. The Home Depot acquisition of SRS Distribution was a vertical acquisition. Another vertical acquisition was the 2024 Synopsys acquisition of Ansys. Ansys provides software that uses the Synopsys computer chips. Conglomerate acquisition: The acquiring firm and the acquired firm are not related to each other. Conglomerate acquisitions are popular in the technology arena. For example, by early 2024, Alphabet had acquired more than 257 companies since 2003. And while you may be familiar with Google’s Android OS for cell phones, you may not be aware that Google acquired Android in 2005. A NOTE ABOUT TAKEOVERS Takeover is a general and imprecise term referring to the transfer of control of a firm from one group of shareholders to another.2 A firm that has decided to take over another firm is usually referred to as the bidder. The bidder offers to pay cash or securities to obtain the stock or assets of another company. If the offer is accepted, the target firm will give up control over its stock or assets to the bidder in exchange for consideration (i.e., its stock, its debt, or cash).3 Takeovers can occur by acquisitions, proxy contests, and going-private transactions. Thus, takeovers encompass a broader set of activities than acquisitions, as depicted in Figure 29.1. Figure 29.1 Varieties of Takeovers If a takeover is achieved by acquisition, it will be by merger, tender offer for shares of stock, or purchase of assets. In mergers and tender offers, the acquiring firm buys the voting common stock of the acquired firm. Page 889 Proxy contests can result in takeovers, as well. Proxy contests occur when a group of shareholders attempts to gain seats on the board of directors. A proxy is written authorization for one shareholder to vote the stock of another shareholder. In a proxy contest, an insurgent group of shareholders solicits proxies from other shareholders. In going-private transactions, a small group of investors purchases all the equity shares of a public firm. The group usually includes members of incumbent management and some outside investors. The shares of the firm are delisted from stock exchanges and can no longer be purchased in the open market.
18.1 Adjusted Present Value Approach In this chapter, we describe three approaches to valuation for the levered firm. In particular, we describe the adjusted present value (APV) approach, the flow to equity (FTE) approach, and the weighted average cost of capital (WACC) approach. The analysis of these approaches is relevant for entire firms as well as individual projects. As you may recognize, we have discussed the WACC approach in depth in a previous chapter. In this chapter, we will introduce the APV and FTE approaches, and show that each of the three approaches is logically consistent with the others and will give the same answer. However, at times, one approach might be easier to implement than another, and we suggest guidelines for selecting between the approaches. We start with the adjusted present value method. The adjusted present value (APV) method is best described by the following formula: Page 561 In words, the value of a project to a levered firm (APV) is equal to the value of the project to an unlevered firm (NPV) plus the net present value of the financing side effects (NPVF). We can generally think of four side effects: The tax subsidy to debt: This was discussed in Chapter 16, where we pointed out that for perpetual debt, the value of the tax subsidy is . ( is the corporate tax rate and B is the value of the debt.) The material about valuation under corporate taxes in Chapter 16 is actually an application of the APV approach. The costs of issuing new securities: As we will discuss in detail in Chapter 20, investment bankers participate in the public issuance of corporate debt. These bankers must be compensated for their time and effort, a cost that lowers the value of the project. The costs of financial distress: The possibility of financial distress, and bankruptcy in particular, arises with debt financing. As we discussed in a previous chapter, financial distress imposes costs, thereby lowering value. Subsidies to debt financing: The interest on debt issued by state and local governments is not taxable to the investor. Because of this, the yield on tax-exempt debt is generally substantially below the yield on taxable debt. Frequently, corporations can obtain financing from a municipality at the tax-exempt rate because the municipality can borrow at that rate. As with any subsidy, this subsidy adds value. Although each of the preceding four side effects is important, the tax deduction to debt almost certainly has the highest dollar value in most actual situations. For this reason, the following example considers the tax subsidy but not the other three side effects.1 Consider a project of the P. B. Singer Co. with the following characteristics: Cash inflows: $500,000 per year for the indefinite future. Cash costs: $383,038 per year for the indefinite future. Initial investment: $475,000 , where is the cost of capital for an all-equity-financed project. If both the project and the firm are financed with only equity, the project’s cash flow is as follows: Table Summary: A table has two columns. Column 1 have account names. Column 2 have values in dollar amounts. Cash inflows $500,000 Cash costs 383,038 Operating income $116,962 Corporate tax (21%) 24,562 Unlevered cash flow (UCF) $92,400 The distinction between present value and net present value is important for this example. The present value of a project is determined before the initial investment at Year 0 is subtracted. The initial investment is subtracted for the calculation of net present value. We then need , the cost of capital for an all-equity-financed project. Assuming an appropriate discount rate of 20 percent, the present value of the project is: The net present value (NPV) of the project—that is, the value of the project if it were financed with only equity—is: Page 562 Because the NPV is negative, the project would be rejected by a firm that plans to finance with only equity. Now imagine that the firm finances the project with exactly $121,900 in debt in perpetuity, so that the remaining investment of is financed with equity. The net present value of the project under leverage, which we call the adjusted present value, or the APV, is: That is, the value of the project when financed with leverage is equal to the value of the project when financed with all equity plus the tax shield from the debt. Because this number is positive, the project should be accepted.2 You may be wondering why we chose such a precise amount of debt. Actually, we chose it so that the ratio of debt to the present value of the project under leverage is 25 percent.3 In this example, debt is a fixed proportion of the present value of the project, not a fixed proportion of the initial investment of $475,000. This is consistent with the goal of a target debt-market-value ratio, which we find in the real world. For example, commercial banks typically lend to real estate developers a fixed percentage of the appraised market value of a project, not a fixed percentage of the initial investment.
19.1 Different Types of Payouts The term dividend usually refers to a cash distribution of earnings. If a distribution is made from sources other than current or accumulated retained earnings, the term distribution rather than dividend is used. However, it is acceptable to refer to a distribution from earnings as a dividend and a distribution from capital as a liquidating dividend. The most common type of dividend is in the form of cash. When public companies pay dividends, they usually pay regular cash dividends four times a year. Sometimes firms will pay a regular cash dividend and an extra cash dividend. Paying a cash dividend reduces corporate cash and retained earnings—except in the case of a liquidating dividend (where paid-in capital may be reduced). Another type of dividend is paid out in shares of stock. This dividend is referred to as a stock dividend. It is not a true dividend because no cash leaves the firm. Rather, a stock dividend increases the number of shares outstanding, reducing the value of each share. A stock dividend is commonly expressed as a ratio; for example, with a 2 percent stock dividend, a shareholder receives 1 new share for every 50 currently owned. When a firm declares a stock split, it increases the number of shares outstanding. Because each share is now entitled to a smaller percentage of the firm’s cash flow, the stock price should fall. For example, if the managers of a firm whose stock is selling at $90 declare a three-for-one stock split, the price of a share of stock should fall to $30. A stock split strongly resembles a stock dividend except that it is usually much larger. An alternative form of cash payout is a stock repurchase. As a firm may use cash to pay dividends, it may use cash to buy back shares of its stock. The shares are held by the corporation and accounted for as treasury stock.
**References**
Berk, J. & DeMarzo, P. (2016). Corporate Finance (4th ed.) Pearson
S.Yu. Ilyin, Krasnyanskaya, O. V., Shatskaya, I. V., & Beketova, O. N. (2020).
_Business sustainability management in the current scientific and technical climate_. EDP Sciences. https://doi.org/10.1051/e3sconf/202020803034
Pandy, W. R., & Rogerson, C. M. (2019). Urban tourism and climate change: Risk perceptions of business tourism stakeholders in Johannesburg, South Africa.
_Urbani Izziv, Suppl.Supplement, 30_, 225-243. https://doi.org/10.5379/urbani-izziv-en-2019-30-supplement-015
**Respond to windell ( no more than 150 words)**
From Chapter 21 the lease vs. buy concept is very applicable in today's world of business. it basically is whether or not a business may purchase an asset in its entirety (often through the use of debt) or lease the asset over a period of time. Although it may seem simple, given the current economic conditions, it has certainly evolved strategically.
There are two types of leases, financial leases and operating leases. Financial leases are long-term and non-cancellable while operating leases are shorter-term and also more flexible. As of 2019, accounting rules state that most of the leases that are entered into must be reported on the balance sheet. This results in a more clear and deliberate way for a firm to report the lease. Lease payments and a firm’s depreciation tax shields are usually predictable and therefore the firm’s after-tax borrowing rate is applied, similar to the evaluation of most types of capital investments.
Given the current state of the economy, leasing is more relevant than ever. The current higher interest rate environment has made it more difficult for companies to factor in large, upfront capital expenditures and leaves them with more fluid cashflows. Many companies have also begun to adapt leasing structures in order to avoid stress on the balance sheet. With leases, companies are given the ability to operate without the burden of ownership and can more easily adapt to a dynamic environment.
This chapter explains that value can be created from leasing for three main reasons: tax position differences between lessor and lessee, risk shifting to the lessor, and the reduction of transaction cost. These benefits are more significant in industries that are experiencing technological advances. As stated in The Economist, businesses seem less likely to own assets that they expect to be outdated in a short period of time, which makes leasing more beneficial. (The Economist, 2024).
The best real-life case is Formula 1. Teams like Red Bull Racing have cost caps per season and need to be extremely prudent with their available capital. Leasing and/or supplier-based assets enable them to not have underperforming short-life-cycle assets in their account. Formula 1 perfectly illustrates what Chapter 21 is about: leasing provides flexibility, enables risk management, and offers the opportunity to make financially sound choices.
The lease/buy decision is not merely an accounting function anymore. In the current context, it is a vital strategy to enable businesses to manage risk, retain flexibility, and maintain a competitive edge.
**Respond to benn ( no more than 150 words)**
Good afternoon everyone,
Mergers and acquisitions are a wild ride in corporate finance. Big companies swallow others whole or merge to bulk up. They chase to grab market share before someone else does. From Berk and DeMarzo's Chapter 21, horizontal mergers happen when rivals team up like airlines consolidating routes. Vertical mergers give supply chain control. Think manufacturers buying suppliers. Conglomerates mean random diversification. Those often flop long term. Takeovers add drama with hostile bids shaking things up. U.S. laws force fair value premiums. Shareholders get pre announcement prices plus a juicy markup. No cheap steals allowed!
Fast forward to today's cutthroat business climate and M&A is roaring back harder than ever. Wall Street bankers are prepping for a 2026 monster deal onslaught. This follows 2025's record 68 megadeals each $10B plus. They smashed historical highs and pushed average deal sizes to $227M. Tech leads the charge. Couldn’t believe Netflix scooping Warner Bros. Discovery for $82.7B. Or a consortium grabbing Electronic Arts for $55B in a massive take private. AI is the rocket fuel. Alphabet's $32B Wiz buy and Palo Alto's $25B CyberArk snag show it. Firms are desperate for cyber and infra edge amid digital arms races. Even with Trump tariffs jacking uncertainty early last year, deal values exploded 45% to $1.6T in the U.S. alone by November.
This boom matters now because in a shaky economy…companies are not waiting. They buy growth outright. Geopolitics and inflation flickers add pressure. AI hype does too. Midmarket deals under $1B are heating up too per Deloitte/WSJ. Everyone from strategics to PE hunts value amid two M&A markets. Risks lurk though. Antitrust scrutiny is brutal especially in tech. Valuations are frothy. Integration flops kill 70% of gains if you are sloppy. Still with pipelines full and confidence up 2026 looks primed for more fireworks. Smart firms will match deals to strategy not FOMO.
Hope you all have a great week!
**Business_sustainability_manage1.pdf**
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**Urban_tourism_and_climate_chan.pdf**
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**## DiscussionPromptweek7.docx**
**Discussion Prompt:**
In this Discussion, please reflect on the week's topics. Choose a topic from Chapters 18, 19, or 21.
Your research should provide a measure of information about the topic’s significance to the current business climate. At least two reference sources should be used to support a substantive and detailed response. Make sure to give credit to your sources, though formal citations are not required. Please be thorough and respectful on the discussion board. Check your grammar, punctuation and spelling before posting.
Reference sources must be limited to the Wall Street Journal, Financial Times, New York Times, Barron’s, Investors’ Business Daily, The Economist, or an academic journal article from a respected accounting or finance journal.
29.1 The Basic Forms of Acquisitions Acquisitions follow one of three basic forms: merger or consolidation, acquisition of stock, and acquisition of assets. MERGER OR CONSOLIDATION A merger refers to the absorption of one firm by another. The acquiring firm retains its name and identity, and it acquires all of the assets and liabilities of the acquired firm. After a merger, the acquired firm ceases to exist as a separate business entity. A consolidation is the same as a merger except that an entirely new firm is created. In a consolidation, both the acquiring firm and the acquired firm terminate their previous legal existence and become part of the new firm. EXAMPLE 29.1 Merger Basics Suppose Firm A acquires Firm B in a merger. Further, suppose Firm B’s shareholders are given one share of Firm A’s stock in exchange for two shares of Firm B’s stock. From a legal standpoint, Firm A’s shareholders are not directly affected by the merger. However, Firm B’s shares cease to exist. In a consolidation, the shareholders of Firm A and Firm B exchange their shares for shares of a new firm (e.g., Firm C). Page 887 Because of the similarities between mergers and consolidations, we shall refer to both types of reorganization as mergers. Here are two important points about mergers and consolidations: A merger is legally straightforward and does not cost as much as other forms of acquisition. It avoids the necessity of transferring title of each individual asset of the acquired firm to the acquiring firm. The stockholders of each firm must approve a merger.1 Typically, two-thirds of share owners must vote in favor for it to be approved. In addition, shareholders of the acquired firm have appraisal rights. This means that they can demand that the acquiring firm purchase their shares at a fair value. Often, the acquiring firm and the dissenting shareholders of the acquired firm cannot agree on a fair value, which results in expensive legal proceedings. ACQUISITION OF STOCK A second way to acquire another firm is to purchase the firm’s voting stock in exchange for cash, shares of stock, or other securities. This process may start as a private offer from the management of one firm to another. At some point, the offer is taken directly to the selling firm’s stockholders, often by a tender offer. A tender offer is a public offer to buy shares of a target firm. It is made by one firm directly to the shareholders of another firm. The offer is communicated to the target firm’s shareholders by public announcements such as newspaper advertisements. Sometimes a general mailing is used in a tender offer. However, a general mailing is difficult because the names and addresses of the stockholders of record are not usually available. The following factors are involved in choosing between an acquisition of stock and a merger: In an acquisition of stock, shareholder meetings need not be held and a vote is not required. If the shareholders of the target firm do not like the offer, they are not required to accept it and need not tender their shares. In an acquisition of stock, the bidding firm can deal directly with the shareholders of a target firm via a tender offer. The target firm’s management and board of directors are bypassed. Target managers often resist acquisition. In such cases, acquisition of stock circumvents the target firm’s management. Resistance by the target firm’s management often makes the cost of acquisition of stock higher than the cost by merger. Frequently, a minority of shareholders will hold out in a tender offer and, thus, the target firm cannot be completely absorbed. Complete absorption of one firm by another requires a merger. Many acquisitions of stock end with a formal merger. ACQUISITION OF ASSETS One firm can acquire another by buying all of its assets. The selling firm does not necessarily vanish because its “shell” can be retained. A formal vote of the target stockholders is required in an acquisition of assets. An advantage here is that although the acquirer is often left with minority shareholders in an acquisition of stock, this does not happen in an acquisition of assets. Minority shareholders often present problems, such as holdouts. However, asset acquisition involves transferring title to individual assets, which can be costly. A CLASSIFICATION SCHEME Page 888 Financial analysts have typically classified acquisitions into three types: Horizontal acquisition: Here, both the acquirer and acquired are in the same industry. Capital One’s acquisition of Discover Financial Services, which we mentioned at the beginning of the chapter, would be a horizontal acquisition. Vertical acquisition: A vertical acquisition involves firms at different steps of the production process. The Home Depot acquisition of SRS Distribution was a vertical acquisition. Another vertical acquisition was the 2024 Synopsys acquisition of Ansys. Ansys provides software that uses the Synopsys computer chips. Conglomerate acquisition: The acquiring firm and the acquired firm are not related to each other. Conglomerate acquisitions are popular in the technology arena. For example, by early 2024, Alphabet had acquired more than 257 companies since 2003. And while you may be familiar with Google’s Android OS for cell phones, you may not be aware that Google acquired Android in 2005. A NOTE ABOUT TAKEOVERS Takeover is a general and imprecise term referring to the transfer of control of a firm from one group of shareholders to another.2 A firm that has decided to take over another firm is usually referred to as the bidder. The bidder offers to pay cash or securities to obtain the stock or assets of another company. If the offer is accepted, the target firm will give up control over its stock or assets to the bidder in exchange for consideration (i.e., its stock, its debt, or cash).3 Takeovers can occur by acquisitions, proxy contests, and going-private transactions. Thus, takeovers encompass a broader set of activities than acquisitions, as depicted in Figure 29.1. Figure 29.1 Varieties of Takeovers If a takeover is achieved by acquisition, it will be by merger, tender offer for shares of stock, or purchase of assets. In mergers and tender offers, the acquiring firm buys the voting common stock of the acquired firm. Page 889 Proxy contests can result in takeovers, as well. Proxy contests occur when a group of shareholders attempts to gain seats on the board of directors. A proxy is written authorization for one shareholder to vote the stock of another shareholder. In a proxy contest, an insurgent group of shareholders solicits proxies from other shareholders. In going-private transactions, a small group of investors purchases all the equity shares of a public firm. The group usually includes members of incumbent management and some outside investors. The shares of the firm are delisted from stock exchanges and can no longer be purchased in the open market.
18.1 Adjusted Present Value Approach In this chapter, we describe three approaches to valuation for the levered firm. In particular, we describe the adjusted present value (APV) approach, the flow to equity (FTE) approach, and the weighted average cost of capital (WACC) approach. The analysis of these approaches is relevant for entire firms as well as individual projects. As you may recognize, we have discussed the WACC approach in depth in a previous chapter. In this chapter, we will introduce the APV and FTE approaches, and show that each of the three approaches is logically consistent with the others and will give the same answer. However, at times, one approach might be easier to implement than another, and we suggest guidelines for selecting between the approaches. We start with the adjusted present value method. The adjusted present value (APV) method is best described by the following formula: Page 561 In words, the value of a project to a levered firm (APV) is equal to the value of the project to an unlevered firm (NPV) plus the net present value of the financing side effects (NPVF). We can generally think of four side effects: The tax subsidy to debt: This was discussed in Chapter 16, where we pointed out that for perpetual debt, the value of the tax subsidy is . ( is the corporate tax rate and B is the value of the debt.) The material about valuation under corporate taxes in Chapter 16 is actually an application of the APV approach. The costs of issuing new securities: As we will discuss in detail in Chapter 20, investment bankers participate in the public issuance of corporate debt. These bankers must be compensated for their time and effort, a cost that lowers the value of the project. The costs of financial distress: The possibility of financial distress, and bankruptcy in particular, arises with debt financing. As we discussed in a previous chapter, financial distress imposes costs, thereby lowering value. Subsidies to debt financing: The interest on debt issued by state and local governments is not taxable to the investor. Because of this, the yield on tax-exempt debt is generally substantially below the yield on taxable debt. Frequently, corporations can obtain financing from a municipality at the tax-exempt rate because the municipality can borrow at that rate. As with any subsidy, this subsidy adds value. Although each of the preceding four side effects is important, the tax deduction to debt almost certainly has the highest dollar value in most actual situations. For this reason, the following example considers the tax subsidy but not the other three side effects.1 Consider a project of the P. B. Singer Co. with the following characteristics: Cash inflows: $500,000 per year for the indefinite future. Cash costs: $383,038 per year for the indefinite future. Initial investment: $475,000 , where is the cost of capital for an all-equity-financed project. If both the project and the firm are financed with only equity, the project’s cash flow is as follows: Table Summary: A table has two columns. Column 1 have account names. Column 2 have values in dollar amounts. Cash inflows $500,000 Cash costs 383,038 Operating income $116,962 Corporate tax (21%) 24,562 Unlevered cash flow (UCF) $92,400 The distinction between present value and net present value is important for this example. The present value of a project is determined before the initial investment at Year 0 is subtracted. The initial investment is subtracted for the calculation of net present value. We then need , the cost of capital for an all-equity-financed project. Assuming an appropriate discount rate of 20 percent, the present value of the project is: The net present value (NPV) of the project—that is, the value of the project if it were financed with only equity—is: Page 562 Because the NPV is negative, the project would be rejected by a firm that plans to finance with only equity. Now imagine that the firm finances the project with exactly $121,900 in debt in perpetuity, so that the remaining investment of is financed with equity. The net present value of the project under leverage, which we call the adjusted present value, or the APV, is: That is, the value of the project when financed with leverage is equal to the value of the project when financed with all equity plus the tax shield from the debt. Because this number is positive, the project should be accepted.2 You may be wondering why we chose such a precise amount of debt. Actually, we chose it so that the ratio of debt to the present value of the project under leverage is 25 percent.3 In this example, debt is a fixed proportion of the present value of the project, not a fixed proportion of the initial investment of $475,000. This is consistent with the goal of a target debt-market-value ratio, which we find in the real world. For example, commercial banks typically lend to real estate developers a fixed percentage of the appraised market value of a project, not a fixed percentage of the initial investment.
19.1 Different Types of Payouts The term dividend usually refers to a cash distribution of earnings. If a distribution is made from sources other than current or accumulated retained earnings, the term distribution rather than dividend is used. However, it is acceptable to refer to a distribution from earnings as a dividend and a distribution from capital as a liquidating dividend. The most common type of dividend is in the form of cash. When public companies pay dividends, they usually pay regular cash dividends four times a year. Sometimes firms will pay a regular cash dividend and an extra cash dividend. Paying a cash dividend reduces corporate cash and retained earnings—except in the case of a liquidating dividend (where paid-in capital may be reduced). Another type of dividend is paid out in shares of stock. This dividend is referred to as a stock dividend. It is not a true dividend because no cash leaves the firm. Rather, a stock dividend increases the number of shares outstanding, reducing the value of each share. A stock dividend is commonly expressed as a ratio; for example, with a 2 percent stock dividend, a shareholder receives 1 new share for every 50 currently owned. When a firm declares a stock split, it increases the number of shares outstanding. Because each share is now entitled to a smaller percentage of the firm’s cash flow, the stock price should fall. For example, if the managers of a firm whose stock is selling at $90 declare a three-for-one stock split, the price of a share of stock should fall to $30. A stock split strongly resembles a stock dividend except that it is usually much larger. An alternative form of cash payout is a stock repurchase. As a firm may use cash to pay dividends, it may use cash to buy back shares of its stock. The shares are held by the corporation and accounted for as treasury stock.
**References**
Berk, J. & DeMarzo, P. (2016). Corporate Finance (4th ed.) Pearson
S.Yu. Ilyin, Krasnyanskaya, O. V., Shatskaya, I. V., & Beketova, O. N. (2020).
_Business sustainability management in the current scientific and technical climate_. EDP Sciences. https://doi.org/10.1051/e3sconf/202020803034
Pandy, W. R., & Rogerson, C. M. (2019). Urban tourism and climate change: Risk perceptions of business tourism stakeholders in Johannesburg, South Africa.
_Urbani Izziv, Suppl.Supplement, 30_, 225-243. https://doi.org/10.5379/urbani-izziv-en-2019-30-supplement-015
**Respond to windell ( no more than 150 words)**
From Chapter 21 the lease vs. buy concept is very applicable in today's world of business. it basically is whether or not a business may purchase an asset in its entirety (often through the use of debt) or lease the asset over a period of time. Although it may seem simple, given the current economic conditions, it has certainly evolved strategically.
There are two types of leases, financial leases and operating leases. Financial leases are long-term and non-cancellable while operating leases are shorter-term and also more flexible. As of 2019, accounting rules state that most of the leases that are entered into must be reported on the balance sheet. This results in a more clear and deliberate way for a firm to report the lease. Lease payments and a firm’s depreciation tax shields are usually predictable and therefore the firm’s after-tax borrowing rate is applied, similar to the evaluation of most types of capital investments.
Given the current state of the economy, leasing is more relevant than ever. The current higher interest rate environment has made it more difficult for companies to factor in large, upfront capital expenditures and leaves them with more fluid cashflows. Many companies have also begun to adapt leasing structures in order to avoid stress on the balance sheet. With leases, companies are given the ability to operate without the burden of ownership and can more easily adapt to a dynamic environment.
This chapter explains that value can be created from leasing for three main reasons: tax position differences between lessor and lessee, risk shifting to the lessor, and the reduction of transaction cost. These benefits are more significant in industries that are experiencing technological advances. As stated in The Economist, businesses seem less likely to own assets that they expect to be outdated in a short period of time, which makes leasing more beneficial. (The Economist, 2024).
The best real-life case is Formula 1. Teams like Red Bull Racing have cost caps per season and need to be extremely prudent with their available capital. Leasing and/or supplier-based assets enable them to not have underperforming short-life-cycle assets in their account. Formula 1 perfectly illustrates what Chapter 21 is about: leasing provides flexibility, enables risk management, and offers the opportunity to make financially sound choices.
The lease/buy decision is not merely an accounting function anymore. In the current context, it is a vital strategy to enable businesses to manage risk, retain flexibility, and maintain a competitive edge.
**Respond to benn ( no more than 150 words)**
Good afternoon everyone,
Mergers and acquisitions are a wild ride in corporate finance. Big companies swallow others whole or merge to bulk up. They chase to grab market share before someone else does. From Berk and DeMarzo's Chapter 21, horizontal mergers happen when rivals team up like airlines consolidating routes. Vertical mergers give supply chain control. Think manufacturers buying suppliers. Conglomerates mean random diversification. Those often flop long term. Takeovers add drama with hostile bids shaking things up. U.S. laws force fair value premiums. Shareholders get pre announcement prices plus a juicy markup. No cheap steals allowed!
Fast forward to today's cutthroat business climate and M&A is roaring back harder than ever. Wall Street bankers are prepping for a 2026 monster deal onslaught. This follows 2025's record 68 megadeals each $10B plus. They smashed historical highs and pushed average deal sizes to $227M. Tech leads the charge. Couldn’t believe Netflix scooping Warner Bros. Discovery for $82.7B. Or a consortium grabbing Electronic Arts for $55B in a massive take private. AI is the rocket fuel. Alphabet's $32B Wiz buy and Palo Alto's $25B CyberArk snag show it. Firms are desperate for cyber and infra edge amid digital arms races. Even with Trump tariffs jacking uncertainty early last year, deal values exploded 45% to $1.6T in the U.S. alone by November.
This boom matters now because in a shaky economy…companies are not waiting. They buy growth outright. Geopolitics and inflation flickers add pressure. AI hype does too. Midmarket deals under $1B are heating up too per Deloitte/WSJ. Everyone from strategics to PE hunts value amid two M&A markets. Risks lurk though. Antitrust scrutiny is brutal especially in tech. Valuations are frothy. Integration flops kill 70% of gains if you are sloppy. Still with pipelines full and confidence up 2026 looks primed for more fireworks. Smart firms will match deals to strategy not FOMO.
Hope you all have a great week!
**Business_sustainability_manage1.pdf**
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**Urban_tourism_and_climate_chan.pdf**
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**## DiscussionPromptweek7.docx**
**Discussion Prompt:**
In this Discussion, please reflect on the week's topics. Choose a topic from Chapters 18, 19, or 21.
Your research should provide a measure of information about the topic’s significance to the current business climate. At least two reference sources should be used to support a substantive and detailed response. Make sure to give credit to your sources, though formal citations are not required. Please be thorough and respectful on the discussion board. Check your grammar, punctuation and spelling before posting.
Reference sources must be limited to the Wall Street Journal, Financial Times, New York Times, Barron’s, Investors’ Business Daily, The Economist, or an academic journal article from a respected accounting or finance journal.
29.1 The Basic Forms of Acquisitions Acquisitions follow one of three basic forms: merger or consolidation, acquisition of stock, and acquisition of assets. MERGER OR CONSOLIDATION A merger refers to the absorption of one firm by another. The acquiring firm retains its name and identity, and it acquires all of the assets and liabilities of the acquired firm. After a merger, the acquired firm ceases to exist as a separate business entity. A consolidation is the same as a merger except that an entirely new firm is created. In a consolidation, both the acquiring firm and the acquired firm terminate their previous legal existence and become part of the new firm. EXAMPLE 29.1 Merger Basics Suppose Firm A acquires Firm B in a merger. Further, suppose Firm B’s shareholders are given one share of Firm A’s stock in exchange for two shares of Firm B’s stock. From a legal standpoint, Firm A’s shareholders are not directly affected by the merger. However, Firm B’s shares cease to exist. In a consolidation, the shareholders of Firm A and Firm B exchange their shares for shares of a new firm (e.g., Firm C). Page 887 Because of the similarities between mergers and consolidations, we shall refer to both types of reorganization as mergers. Here are two important points about mergers and consolidations: A merger is legally straightforward and does not cost as much as other forms of acquisition. It avoids the necessity of transferring title of each individual asset of the acquired firm to the acquiring firm. The stockholders of each firm must approve a merger.1 Typically, two-thirds of share owners must vote in favor for it to be approved. In addition, shareholders of the acquired firm have appraisal rights. This means that they can demand that the acquiring firm purchase their shares at a fair value. Often, the acquiring firm and the dissenting shareholders of the acquired firm cannot agree on a fair value, which results in expensive legal proceedings. ACQUISITION OF STOCK A second way to acquire another firm is to purchase the firm’s voting stock in exchange for cash, shares of stock, or other securities. This process may start as a private offer from the management of one firm to another. At some point, the offer is taken directly to the selling firm’s stockholders, often by a tender offer. A tender offer is a public offer to buy shares of a target firm. It is made by one firm directly to the shareholders of another firm. The offer is communicated to the target firm’s shareholders by public announcements such as newspaper advertisements. Sometimes a general mailing is used in a tender offer. However, a general mailing is difficult because the names and addresses of the stockholders of record are not usually available. The following factors are involved in choosing between an acquisition of stock and a merger: In an acquisition of stock, shareholder meetings need not be held and a vote is not required. If the shareholders of the target firm do not like the offer, they are not required to accept it and need not tender their shares. In an acquisition of stock, the bidding firm can deal directly with the shareholders of a target firm via a tender offer. The target firm’s management and board of directors are bypassed. Target managers often resist acquisition. In such cases, acquisition of stock circumvents the target firm’s management. Resistance by the target firm’s management often makes the cost of acquisition of stock higher than the cost by merger. Frequently, a minority of shareholders will hold out in a tender offer and, thus, the target firm cannot be completely absorbed. Complete absorption of one firm by another requires a merger. Many acquisitions of stock end with a formal merger. ACQUISITION OF ASSETS One firm can acquire another by buying all of its assets. The selling firm does not necessarily vanish because its “shell” can be retained. A formal vote of the target stockholders is required in an acquisition of assets. An advantage here is that although the acquirer is often left with minority shareholders in an acquisition of stock, this does not happen in an acquisition of assets. Minority shareholders often present problems, such as holdouts. However, asset acquisition involves transferring title to individual assets, which can be costly. A CLASSIFICATION SCHEME Page 888 Financial analysts have typically classified acquisitions into three types: Horizontal acquisition: Here, both the acquirer and acquired are in the same industry. Capital One’s acquisition of Discover Financial Services, which we mentioned at the beginning of the chapter, would be a horizontal acquisition. Vertical acquisition: A vertical acquisition involves firms at different steps of the production process. The Home Depot acquisition of SRS Distribution was a vertical acquisition. Another vertical acquisition was the 2024 Synopsys acquisition of Ansys. Ansys provides software that uses the Synopsys computer chips. Conglomerate acquisition: The acquiring firm and the acquired firm are not related to each other. Conglomerate acquisitions are popular in the technology arena. For example, by early 2024, Alphabet had acquired more than 257 companies since 2003. And while you may be familiar with Google’s Android OS for cell phones, you may not be aware that Google acquired Android in 2005. A NOTE ABOUT TAKEOVERS Takeover is a general and imprecise term referring to the transfer of control of a firm from one group of shareholders to another.2 A firm that has decided to take over another firm is usually referred to as the bidder. The bidder offers to pay cash or securities to obtain the stock or assets of another company. If the offer is accepted, the target firm will give up control over its stock or assets to the bidder in exchange for consideration (i.e., its stock, its debt, or cash).3 Takeovers can occur by acquisitions, proxy contests, and going-private transactions. Thus, takeovers encompass a broader set of activities than acquisitions, as depicted in Figure 29.1. Figure 29.1 Varieties of Takeovers If a takeover is achieved by acquisition, it will be by merger, tender offer for shares of stock, or purchase of assets. In mergers and tender offers, the acquiring firm buys the voting common stock of the acquired firm. Page 889 Proxy contests can result in takeovers, as well. Proxy contests occur when a group of shareholders attempts to gain seats on the board of directors. A proxy is written authorization for one shareholder to vote the stock of another shareholder. In a proxy contest, an insurgent group of shareholders solicits proxies from other shareholders. In going-private transactions, a small group of investors purchases all the equity shares of a public firm. The group usually includes members of incumbent management and some outside investors. The shares of the firm are delisted from stock exchanges and can no longer be purchased in the open market.
18.1 Adjusted Present Value Approach In this chapter, we describe three approaches to valuation for the levered firm. In particular, we describe the adjusted present value (APV) approach, the flow to equity (FTE) approach, and the weighted average cost of capital (WACC) approach. The analysis of these approaches is relevant for entire firms as well as individual projects. As you may recognize, we have discussed the WACC approach in depth in a previous chapter. In this chapter, we will introduce the APV and FTE approaches, and show that each of the three approaches is logically consistent with the others and will give the same answer. However, at times, one approach might be easier to implement than another, and we suggest guidelines for selecting between the approaches. We start with the adjusted present value method. The adjusted present value (APV) method is best described by the following formula: Page 561 In words, the value of a project to a levered firm (APV) is equal to the value of the project to an unlevered firm (NPV) plus the net present value of the financing side effects (NPVF). We can generally think of four side effects: The tax subsidy to debt: This was discussed in Chapter 16, where we pointed out that for perpetual debt, the value of the tax subsidy is . ( is the corporate tax rate and B is the value of the debt.) The material about valuation under corporate taxes in Chapter 16 is actually an application of the APV approach. The costs of issuing new securities: As we will discuss in detail in Chapter 20, investment bankers participate in the public issuance of corporate debt. These bankers must be compensated for their time and effort, a cost that lowers the value of the project. The costs of financial distress: The possibility of financial distress, and bankruptcy in particular, arises with debt financing. As we discussed in a previous chapter, financial distress imposes costs, thereby lowering value. Subsidies to debt financing: The interest on debt issued by state and local governments is not taxable to the investor. Because of this, the yield on tax-exempt debt is generally substantially below the yield on taxable debt. Frequently, corporations can obtain financing from a municipality at the tax-exempt rate because the municipality can borrow at that rate. As with any subsidy, this subsidy adds value. Although each of the preceding four side effects is important, the tax deduction to debt almost certainly has the highest dollar value in most actual situations. For this reason, the following example considers the tax subsidy but not the other three side effects.1 Consider a project of the P. B. Singer Co. with the following characteristics: Cash inflows: $500,000 per year for the indefinite future. Cash costs: $383,038 per year for the indefinite future. Initial investment: $475,000 , where is the cost of capital for an all-equity-financed project. If both the project and the firm are financed with only equity, the project’s cash flow is as follows: Table Summary: A table has two columns. Column 1 have account names. Column 2 have values in dollar amounts. Cash inflows $500,000 Cash costs 383,038 Operating income $116,962 Corporate tax (21%) 24,562 Unlevered cash flow (UCF) $92,400 The distinction between present value and net present value is important for this example. The present value of a project is determined before the initial investment at Year 0 is subtracted. The initial investment is subtracted for the calculation of net present value. We then need , the cost of capital for an all-equity-financed project. Assuming an appropriate discount rate of 20 percent, the present value of the project is: The net present value (NPV) of the project—that is, the value of the project if it were financed with only equity—is: Page 562 Because the NPV is negative, the project would be rejected by a firm that plans to finance with only equity. Now imagine that the firm finances the project with exactly $121,900 in debt in perpetuity, so that the remaining investment of is financed with equity. The net present value of the project under leverage, which we call the adjusted present value, or the APV, is: That is, the value of the project when financed with leverage is equal to the value of the project when financed with all equity plus the tax shield from the debt. Because this number is positive, the project should be accepted.2 You may be wondering why we chose such a precise amount of debt. Actually, we chose it so that the ratio of debt to the present value of the project under leverage is 25 percent.3 In this example, debt is a fixed proportion of the present value of the project, not a fixed proportion of the initial investment of $475,000. This is consistent with the goal of a target debt-market-value ratio, which we find in the real world. For example, commercial banks typically lend to real estate developers a fixed percentage of the appraised market value of a project, not a fixed percentage of the initial investment.
19.1 Different Types of Payouts The term dividend usually refers to a cash distribution of earnings. If a distribution is made from sources other than current or accumulated retained earnings, the term distribution rather than dividend is used. However, it is acceptable to refer to a distribution from earnings as a dividend and a distribution from capital as a liquidating dividend. The most common type of dividend is in the form of cash. When public companies pay dividends, they usually pay regular cash dividends four times a year. Sometimes firms will pay a regular cash dividend and an extra cash dividend. Paying a cash dividend reduces corporate cash and retained earnings—except in the case of a liquidating dividend (where paid-in capital may be reduced). Another type of dividend is paid out in shares of stock. This dividend is referred to as a stock dividend. It is not a true dividend because no cash leaves the firm. Rather, a stock dividend increases the number of shares outstanding, reducing the value of each share. A stock dividend is commonly expressed as a ratio; for example, with a 2 percent stock dividend, a shareholder receives 1 new share for every 50 currently owned. When a firm declares a stock split, it increases the number of shares outstanding. Because each share is now entitled to a smaller percentage of the firm’s cash flow, the stock price should fall. For example, if the managers of a firm whose stock is selling at $90 declare a three-for-one stock split, the price of a share of stock should fall to $30. A stock split strongly resembles a stock dividend except that it is usually much larger. An alternative form of cash payout is a stock repurchase. As a firm may use cash to pay dividends, it may use cash to buy back shares of its stock. The shares are held by the corporation and accounted for as treasury stock.
**References**
Berk, J. & DeMarzo, P. (2016). Corporate Finance (4th ed.) Pearson
S.Yu. Ilyin, Krasnyanskaya, O. V., Shatskaya, I. V., & Beketova, O. N. (2020).
_Business sustainability management in the current scientific and technical climate_. EDP Sciences. https://doi.org/10.1051/e3sconf/202020803034
Pandy, W. R., & Rogerson, C. M. (2019). Urban tourism and climate change: Risk perceptions of business tourism stakeholders in Johannesburg, South Africa.
_Urbani Izziv, Suppl.Supplement, 30_, 225-243. https://doi.org/10.5379/urbani-izziv-en-2019-30-supplement-015
**Respond to windell ( no more than 150 words)**
From Chapter 21 the lease vs. buy concept is very applicable in today's world of business. it basically is whether or not a business may purchase an asset in its entirety (often through the use of debt) or lease the asset over a period of time. Although it may seem simple, given the current economic conditions, it has certainly evolved strategically.
There are two types of leases, financial leases and operating leases. Financial leases are long-term and non-cancellable while operating leases are shorter-term and also more flexible. As of 2019, accounting rules state that most of the leases that are entered into must be reported on the balance sheet. This results in a more clear and deliberate way for a firm to report the lease. Lease payments and a firm’s depreciation tax shields are usually predictable and therefore the firm’s after-tax borrowing rate is applied, similar to the evaluation of most types of capital investments.
Given the current state of the economy, leasing is more relevant than ever. The current higher interest rate environment has made it more difficult for companies to factor in large, upfront capital expenditures and leaves them with more fluid cashflows. Many companies have also begun to adapt leasing structures in order to avoid stress on the balance sheet. With leases, companies are given the ability to operate without the burden of ownership and can more easily adapt to a dynamic environment.
This chapter explains that value can be created from leasing for three main reasons: tax position differences between lessor and lessee, risk shifting to the lessor, and the reduction of transaction cost. These benefits are more significant in industries that are experiencing technological advances. As stated in The Economist, businesses seem less likely to own assets that they expect to be outdated in a short period of time, which makes leasing more beneficial. (The Economist, 2024).
The best real-life case is Formula 1. Teams like Red Bull Racing have cost caps per season and need to be extremely prudent with their available capital. Leasing and/or supplier-based assets enable them to not have underperforming short-life-cycle assets in their account. Formula 1 perfectly illustrates what Chapter 21 is about: leasing provides flexibility, enables risk management, and offers the opportunity to make financially sound choices.
The lease/buy decision is not merely an accounting function anymore. In the current context, it is a vital strategy to enable businesses to manage risk, retain flexibility, and maintain a competitive edge.
**Respond to benn ( no more than 150 words)**
Good afternoon everyone,
Mergers and acquisitions are a wild ride in corporate finance. Big companies swallow others whole or merge to bulk up. They chase to grab market share before someone else does. From Berk and DeMarzo's Chapter 21, horizontal mergers happen when rivals team up like airlines consolidating routes. Vertical mergers give supply chain control. Think manufacturers buying suppliers. Conglomerates mean random diversification. Those often flop long term. Takeovers add drama with hostile bids shaking things up. U.S. laws force fair value premiums. Shareholders get pre announcement prices plus a juicy markup. No cheap steals allowed!
Fast forward to today's cutthroat business climate and M&A is roaring back harder than ever. Wall Street bankers are prepping for a 2026 monster deal onslaught. This follows 2025's record 68 megadeals each $10B plus. They smashed historical highs and pushed average deal sizes to $227M. Tech leads the charge. Couldn’t believe Netflix scooping Warner Bros. Discovery for $82.7B. Or a consortium grabbing Electronic Arts for $55B in a massive take private. AI is the rocket fuel. Alphabet's $32B Wiz buy and Palo Alto's $25B CyberArk snag show it. Firms are desperate for cyber and infra edge amid digital arms races. Even with Trump tariffs jacking uncertainty early last year, deal values exploded 45% to $1.6T in the U.S. alone by November.
This boom matters now because in a shaky economy…companies are not waiting. They buy growth outright. Geopolitics and inflation flickers add pressure. AI hype does too. Midmarket deals under $1B are heating up too per Deloitte/WSJ. Everyone from strategics to PE hunts value amid two M&A markets. Risks lurk though. Antitrust scrutiny is brutal especially in tech. Valuations are frothy. Integration flops kill 70% of gains if you are sloppy. Still with pipelines full and confidence up 2026 looks primed for more fireworks. Smart firms will match deals to strategy not FOMO.
Hope you all have a great week!
**Business_sustainability_manage1.pdf**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/business-sustainability-manage1-pdf)
**Urban_tourism_and_climate_chan.pdf**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/urban-tourism-and-climate-chan-pdf)