Corporate Finance Assignment Brief: Business Valuations and Investment Appraisal

When we look at valuing a company, we take many factors into consideration. If a company has acquired a firm or merged this will ultimately affect the valuation. Mergers and acquisitions can add value if it was successful”.

1. a) Evaluate the concept of mergers and acquisitions and how they can add value to a firm.

Include real life examples of value creation through M&A’s. (30 marks)

At least 1000 word

1. b) Suggest why companies merge and acquire and discuss your reasons in detail.  (20marks)

at least 600 word

1. c) Evaluate the role and importance of confidentiality agreements/non-disclosure agreements in M&A negotiations.  (10 marks) at least 200 word

research examples and evaluate the findings.

Part B – Investment Appraisal  

DIAZ plc has been researching three investment proposals. Details of the cash flows of each proposal are as follows:

Proposal            Year 0          Year 1          Year 2                 Year 3

                Capital Invested

A                  (€200,000)       120,000         80,000                 80,000

B                   (€800,000)      500,000         440,000              140,000

C                  (€1,600,000)     950,000        850,000              350,000

Diaz plc has €2m available for investment and has a cost of capital of 12%.

1. a) Calculate the optimum combination of investments Diaz plc should invest in assuming that the projects are divisible.
2. b) Discuss ways in which Diaz plc may alternatively address the proposal on the basis that the projects are non-divisible.          (25 marks)

at least 700 words

Report format, Critical thinking and marks research beyond material provided.   (10 marks)

at least 200 words

Intended Module Learning Outcomes

1. Evaluate the role and purpose of the financial management function
2. Critically assess and discuss the impact of the economic environment on financial management
3. Apply appropriate working capital management techniques in particular situations
4. Evaluate complex investment appraisal situations
5. Identify and evaluate alternative sources of short-, medium- and long-term finance
6. Discuss and apply principles of business and asset valuations
7. Analyse the key strategic financial issues to be considered in an acquisition or merger
8. Identify and evaluate the exposure of a company to financial risk and the techniques required to manage this risk

This module further develops the principles of financial management outlined in the ‘Finance and Wealth Management’ module and introduces other topics appropriate to the strategic aspects of finance. The purpose of this module is to provide learners with an understanding of how entities acquire resources, and allocate them among present and future activities and projects.

The learner develops the knowledge and skills expected of a finance manager, in relation to finding and allocating capital to increase the wealth of the firm’s shareholders. Concepts such as corporate objectives, capital investment appraisal, business risk, financial risk, weighted average cost of capital (WACC), working capital management techniques, the valuation of financial assets and risk management are studied. Module Curriculum

• elements of the finance decision and its contribution to the business objectives
• corporate governance and agency theory
• potential conflicts between management and shareholders
• ethical issues facing the finance manager
• nature and role of financial markets, institutions, and money markets
• financial objectives in Not-For-Profit organisations

• the importance of cash and liquidity to the business
• working capital methodologies and working capital requirements for cash,

receivables, payables, and inventory

• medium- and long-term needs, strategies to address shortfalls

Advanced investment appraisal

• advanced capital investment decisions.
• inflation and taxation in investment appraisal process
• risk and uncertainty in investment appraisal including sensitivity analysis, use of a

risk adjusted discount factor, simulation, probability analysis and scenario analysis.

• specific investment decisions (lease or buy decisions; asset replacement, single period

capital rationing)

• sources of short-, medium- and long-term finance.
• methods of raising short- and long-term Islamic finance
• cost of capital (WACC) including the calculation of the cost of debt, cost of equity,

market value of debt and the market value of equity.

• Modigliani and Millers capital structure theories with and without tax and their

practical considerations

• rationale for mergers and acquisitions
• Methods of financing an acquisition including cash, debt and share for share exchanges.

• defence tactics against a hostile takeover.
• regulatory aspects of mergers and acquisitions.
• models for the valuation of companies (asset-based models, income-based models and cash flow-based models).
• Efficient Market Hypothesis (EMH) and the practical considerations in the valuation of shares

• nature, types of risk and approaches to risk management
• hedging techniques for foreign currency risk including:

o currency of invoice

o netting and matching

o leading and lagging

o forward exchange contracts

o money market hedging

o asset and liability management

o matching and smoothing

o asset and liability management

o forward rate agreements