Corporate finance chapter 017 financer and corporate strategy
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Chapter 17: Finance and
Corporate Strategy
Objective
1
Understanding:
Mergers & Acquisitions
Spinoffs
Real Options
Copyright © Prentice Hall Inc. 2000. Author: Nick Bagley, bdellaSoft, Inc.
Chapter 17 Contents
• 17.1 Mergers and Acquisitions
• 17.2 Spinoffs
• 17.3 Investing in Real Options
2
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)
3
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
T
1
C ≈ Sσ
= $100,000,000 * 0.20 *
= $7.98 million
2π
2π
• The NPV of the investment is therefore $(86) millions = $2 millions (do it)
– The premium distributed to the shareholders
4
