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Essay / Research Paper Abstract
This 13 page paper considers the position where a company wants to make an international acquisition of another company or shares where there is a net present value (NPV) of zero. The paper looks at the influences and the effectiveness of the stock market and the currency markets. These are examined using efficient market hypothesis (EMH) and purchasing parity theories. The bibliography cites 15 sources.
Page Count:
13 pages (~225 words per page)
File: TS14_TEaquemhppp.rtf
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Unformatted sample text from the term paper:
NPV of zero. Several issues have been raised including the effectiveness of foreign exchange market and stock market. This report has been put together to consider the various issues raised.
2. The Importance of NPV When an investment is made there is the outlay of capital against a future income stream. Income in the future is not worth the same
as an equivalent numerical amount today. Theimpact of inflation, or the lost opportunity for growth means that any amount will usually be worth less in the future, a simple calculation
can discount future income streams into todays value (Nellis and Parker, 2000). One method is to calculate the net present value. That
is to look to the future and the value of the money at that time and discount it into todays terms. For example, if there is 10% inflation, ?100 today
may only be worth ?90 in the future. If we consider a case where the future revenue is the same as the investment in real terms, this appears to
be breaking even. However, if we consider the impact of the capital that is tied up, the impact of time is visible. If this is the case, if there is a
premium of 20% or 30% on the share value it becomes apparent how much higher the revenue streams will have to be compensate for this initial level of outlay otherwise
there is a real loss. With a projection of an NPV of zero this is a break even point means that value cant then only be gained from synergy,
the cutting of costs for a merger or increased economies of scope and/or scale (Nellis and Parker, 2000). If this is the
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