Applying Capital Budgeting Techniques to Mergers

The most important capital budgeting decision a firm may make is a merger or acquisition. Yet the literature in finance provides little coverage of the topic. Mergers are frequently analyzed on the basis of the exchange rate determination and the impact on earnings per share. Though this topic is covered in the latter part of the article, the main emphasis is on the capital budgeting aspects of a merger analysis. Thus, the key metric to be considered is free cash flow and not earnings per share. Also, the article considers the importance of residual value or the value of the target firm after the traditional 5 or 10 years of cash flow or earnings analysis. By ignoring residual value, as over 50% of Fortune 500 companies do, it is implicitly being assigned a value of zero. This neglect may substantially understate the true value of the target. The article also points out the fallacy of considering relative price/earnings (P/E) ratios on postmerger EPS.     

A CARBON FOOTPRINT TIME SERIES OF THE UK – RESULTS FROM A MULTI-REGION INPUT–OUTPUT MODEL

The framework and results of an international multi-region input–output (MRIO) model for the UK are presented. A time series of balanced input–output tables for the UK was constructed for the period 1992 to 2004 by using a matrix balancing procedure that is able to handle conflicting external data and inconsistent constraints. Detailed sectoral and country-specific trade data for the UK were compiled and reconciled with the UK input–output data, and economic and environmental accounts for three world regions were integrated in a UK-specific MRIO model. This was subsequently used to calculate a time series of national carbon footprints for the UK from 1992 to 2004. Greenhouse gas emissions embedded in UK trade are distinguished by destination of imports to intermediate and final demand. Most greenhouse gases show a significant increase over time in consumer emissions and a widening gap between producer and consumer emissions. Net CO₂ emissions embedded in UK imports increased from 4.3% of producer emissions in 1992 to a maximum of 20% in 2002. The total estimated UK carbon footprint in 2004 was 730 Mt for CO₂ and 934 Mt CO₂ equivalents for all greenhouse gases.     

Discovering wildlife tourism: a whale shark tourism case study

This paper investigates the different sources of information used by tourists to learn about a particular wildlife tourism activity, specifically, whale shark tourism at Ningaloo Marine Park in Western Australia. The findings from this research concur with previous studies of wildlife tourism showing that wildlife tourism operations are reliant on more informal and general forms of promotion, in particular word of mouth and guide books. Conversely, more deliberate marketing mechanisms, such as the internet and documentaries, are not extensively utilised. To disaggregate consumer preferences for various information sources, this article segments the population into more homogenous groups, thereby demonstrating distinct differences in the choice of information source based on the participants’ normal place of residence.     

Environmental regulation and trade openness in the presence of private mitigation

Acknowledging the differential ability of individuals to privately mitigate the consequences of domestic pollution for their health is essential for an understanding of their demands for regulation of the environment and of trade in dirty goods, and for analysis of the implications of these demands for equilibrium policy choices. In a small open economy with exogenous policy, we first explain how private mitigation at a cost results in an unequal distribution of the health consequences of pollution in a manner consistent with epidemiologic studies, and consequently how the benefits and costs of trade in dirty goods interact with choices concerning private mitigation to further polarize the interests of citizens concerning environmental stringency. The economy is then embedded in a broader political economy setting, and simulated to investigate the role of private mitigation in shaping political equilibria. We show that when citizens can choose between mitigating the health consequences of domestic pollution privately and reducing pollution through public policy, the same polarization of interests underlies equilibrium policy choices in both democratic and autocratic regimes.     

Multinational corporations: Trade and investment across the East-West divide

East-West trade and investment remains a preserve of the multinational corporations due to their resources in finance, manpower and production which enables them to absorb the attendant costs of lengthy negotiations; to meet the occasional high-volume order placed by a state foreign trade enterprise purchasing on behalf of an entire sector of industry; to aid the state foreign trade enterprise by sourcing from a world-wide network so as to alleviate currency or distribution problems; and to help with the provision of finance or to agree to part payment by means of the resultant product produced under licence. Size is an important factor, and many of the joint ventures concluded over the last ten years have been for massive investment projects. These joint ventures are of a contractual type and referred to as industrial cooperation agreements' which involve repurchase of the goods produced under licence, often to a value which repays over a specified time the capital borrowed plus interest charges. These counter-trade agreements have become more popular in the Eastern bloc because of their ‘self-financing’ principle but are beginning to face mounting criticism in the West, currently facing a trade recession and the echoing pleas for trade protectionism to curb the threat of cheap Eastern imports upon Western job security. Industrial cooperation has been diverted towards the more export intensive branches of the socialist economies and has led to the increasing size and importance of certain of their production enterprises. This has created Western fears of the advent of the ‘socialist multinationals’ or Socialist Common Enterprises. However, industrial cooperation is a recent phenomenon, and if only by default, a strategy will emerge in future years as to the pattern and behaviour of East-West multinational arrangements.     

Decimals And Liquidity: A Study Of The Nyse

Using a carefully constructed matched sample of control (nondecimal) stocks, we isolate the effects of decimalization for a sample of NYSE‐listed common stocks trading in decimals. We find that the quoted depth as well as the quoted and effective bid‐ask spreads declined significantly following decimalization. Additionally, both the number of trades and trading volume declined significantly. Stock return volatilities display an initial increase but a decline over the longer term, probably as traders become more comfortable in their new milieu.