Question One
Part 1
Hostile Takeover refers to gaining control of a target company by another company through purchasing shares directly from shareholders or trying to change the company’s executive for approval of the acquisition (Chen, 2018). When a hostile takeover occurs, shares of the target company fluctuate. The acquiring company offers a higher price per share to shareholders at a premium to the market value. Additionally, they oust the executive and elucidate to shareholders how the current management is not fully maximizing their shareholder’s value.
Part 2
When a hostile takeover occurs, each stakeholder is affected in some way. For instance, hostile takeover changes may result in the cutting of jobs to reduce costs. For shareholders and the executive, this increases profit margins. On the other hand, employees, and society, in general, lose their source of livelihood. Also, the hostile takeover can result in the transfer of production overseas. This may be detrimental to the local community whereas the executive, customers, and suppliers may benefit from the move. Moreover, the hostile takeover can lead to an increase in selling prices to improve the profit margins, beneficial to shareholders and management while detrimental to the customers and society at large since they have to acquire the products at an elevated price.
Delegate your assignment to our experts and they will do the rest.
A good example of a recent hostile takeover is the offer from US cannabis retailer Green Growth to Canadian pot producer Aphria (CNBC, 2018). The hostile takeover is validated by the recent market declines for Aphria as well cannabis sector. Green Growth is bound to benefit because of its vast US market footprint as well as experience. Moreover, Green Growth already has the upper hand since it outstrips Aphria with its fifty-four million dollars in trailing-twelve-month revenue (CNBC, 2018).
Question Two
If the Law holds, then the prices of every commodity must be the same in every market. Thus, regardless of being produced in Europe or US, Brent Crude Oil price is supposed to remain the same. Nevertheless, the law has some assumptions such as barrier-free trade, cost-free transactions, no barrier for price adjustments, all goods are identical regardless of the location, and LOP holds for all goods in a competitive market. As such, LOP does not do very well in practice for several reasons. Firstly, the prices of a single item may vary with time in the same market. Secondly, high transportation, as well as tariff costs, add on the freight’s price in the global market. Statistically, transportation and tariffs add 20-30% of the total cost of goods ("Predicting Exchange Rates," n.d.) . Thirdly, legal restrictions such as copyrights, as well as imperfect trading bring about the difference in pricing of the same commodity in two separate markets. Moreover, due to diverse market structures, the prices of similar commodities can differ across two separate markets ("Predicting Exchange Rates," n.d.) . Lastly, the occurrence of price stickiness can slow down price adjustment because of arbitrage. Therefore, LOP fails to hold for commodities in some cases due to the reasons elucidated above but it is not false.
Question three
Capital Budgeting refers to procedures employed in establishing whether long-term business investment for example novel plants, products, and research as well as machinery purchase or replacement are worth pursuing ( Cole-Ingait, 2017 ). Moreover, sometimes capital budgeting decision may result in disinvesting. Therefore, capital budgeting plays a significant role in recognizing projects that are worth pursuing, project prioritizing, as well as investments based upon the projects’ returns. In this regard, capital budgeting is an important process for a firm since it enables a firm to figure out worth projects where fund allocation can yield maximally and avoid uncertainties. This is very helpful to firms that face a shortage of funds. Additionally, correct capital budgeting decisions on projects not only affects the firm’s current earnings but also impact its future profits as well as growth. Lastly, capital budgeting decisions play a significant role in improving the firm’s cash flows as well as boosts stock prices.
Reference
Chen, J. (2018, December 13). Hostile Takeover. Retrieved January 12, 2019, from https://www.investopedia.com/terms/h/hostiletakeover.asp
CNBC. (2018, December 28). Green Growth to launch hostile bid for pot producer Aphria. Retrieved January 12, 2019, from https://www.cnbc.com/2018/12/28/green-growth-to-launch-hostile-bid-for-pot-producer-aphria.html
Cole-Ingait, P. (2017, November 21). Is Capital Budgeting One of the Most Important Decisions Management Can Make & Why Is This So? Retrieved January 12, 2019, from http://yourbusiness.azcentral.com/capital-budgeting-one-important-decisions-management-can-make-so-25739.html
Predicting Exchange Rates. Retrieved January 12, 2019, from http://www.business.unr.edu/faculty/parker/econ463/econ463lec4.pdf
