When it comes to expanding, there is creation of new synergies which enhance the efficiencies arising from innovations, new markets access and the economies(Shaw, 2007).
There are several potential issues of ethics that may result from expanding. Expansion may put into practice rising market power to the employers and employees’ detriment. There are also chances of abusing its increased power in the market by expanding. In addition to that, there is a possibility that the services quality would decrease and ignoring of innovation, restrains on trade that are unreasonable and may result to facilitation of the cartels operations(Chien & Zheng, 2012). To add on that, other ethical issues that are potential from the expansion are the clash of egos between the management, in most cases the promoters, and a section of the regulatory framework. There are also chances of over estimating the synergy value as a result of expansions why may eventually lead to distinct culture of the corporate and barriers that are psychological(Desouza & Awazu, 2003).
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In the case that is presented here, Mini Case intends to purchase bigger staff & Biggerstaff (B&B) a company that is held privately under the ownership of two brothers, each of them owning 5 million shares of the stock. B&B as at now has a cash flow that is free of $24 million, with a rate that is constant of 5%.
Free cashflow of the company will be = 24,000,000*(1+0.05)/(0.11-0.05)
=$420 million
Debt is 200 million and a preferred stock of $50 million
Free cashflow equity = (420-200-50)
=$170
The number of equity is 10 million and the share value = 170/10
=$17 per share
Therefore, from the discounted cashflow(DCF) valuation, it is evident that Mini Case has to issue a payment of $17 per share where the present market is $10 per share.
References
Chien, C.-F., & Zheng, J.-N. (2012). Mini–max regret strategy for robust capacity expansion decisions in semiconductor manufacturing. Journal of Intelligent Manufacturing , 23 (6), 2151–2159.
Desouza, K. C., & Awazu, Y. (2003). Constructing internal knowledge markets: considerations from mini cases. International Journal of Information Management , 23 (4), 345–353.
Shaw, J. (2007). The leishmaniases-survival and expansion in a changing world: a mini-review. Memórias Do Instituto Oswaldo Cruz , 102 (5), 541–547.
