Dividends policy are defined that a payout made by a company to its shareholder members. When a company made a profit, managers always put those money to two uses: one is reinvested in the business; the other one is paid to shareholders as dividends. As M&M argued, there are no link between dividends and shareholder value in the perfect market environment. On the other hand, difference distribution for dividend will cause shareholder wealth gain or loss. For example, clientele effect, agency theory, 'bird-in-the-hand' theory and also tax reasons will efficiently demonstrate the change of dividend distribution. Following part will be discussed effect of dividend distributions under tax policy changed.
In the real world, as Wall Street reported that, UK government decided rising tax to 62% of profits from 50% on new field, and up 81% from 69% on older field on North Sea oil earnings. It will not only effect the oil price going down, but also cause the company devalue of their share prices and influence the investment action. For example, EnQuest, a 100% UK based company, it gained the average oil price of $75 per barrel, and its Net Asset Value (NAV) is 95 pence. If its oil price rise to $80 per barrel from $75, its NAV would declined by 13%, because of the change of tax policy by UK government.
If a company's shareholders pay more tax on dividend than their capital gains, they prefer to choose lower dividend distributions. According to Arnold (2008) shows than the UK capital gains are taxed at 18 per cent in the recent year. However, it is much higher tax payout in the oil industry comparing with others. So the useful solution showed by Brown, he encourage the corporations choice lower dividend,higher investment under the tax systems. If a corporation decide lower their dividend for shareholders, the company will reduce liability as much as they can. And using those funds put on the investment also increase their shareholders wealth.
In conclusion, tax systems will effect the distributions of dividends on shareholders. In order to maximise shareholder wealth, managers tend to choose the best way to distribution dividends and volume of investments.
Sunday, 10 April 2011
Sunday, 3 April 2011
How the capital structure impact on the shareholders' wealth?
Modigliani and Millar (1958) though that there are no impact on the WACC to enhance the shareholders' wealth. They explained: first, individuals can borrow as the same rate as corporations; secondly, there are no taxation and financial distress for the company. Based this theory, managers need as much debt as possible, due to cheaper debt, higher value of shareholders. Is that true?
Wall Street reported a news that "Schaeffler cuts stake in Continental to reduce debt" on this Monday. What things caused this huge debt existing? Schaeffler cost 12 billion euros to acquisition its larger viral Continental on August 2008.
What reason causes larger company Continental have to bid with Schaeffler? Because of the Lehman Brothers collapse, the wake of stock market impact on the Continental forced bid with Schaeffler. According to primer CEO of Continental, Manfred Wennemer expressed that he had tired to preserve the independence of the company. So it led to Continental accept bid with Schaeffler on August 2008. Karl-Thomas Neumann instead of Wennemer was a new CEO of Continental on September 2008.
Schaeffler have to delay taking a majority stake until 2012 when they faced those huge debts. In fact, Schaeffler announced that they plan to reduce 15 per cent total stake of Continental to 1.8 billion euros from 12 billion euros recently which caused the share price of Continental up 2.9 per cent. However, they still have nearly 6 billion euros debt from their operation, even cut the cost of acquision to 4.6 billion euros.
Schaeffler launched a takeover bid for Continental in order to maxmize the value of their shareholders. However, increasing huge debt was further burdened by Schaeffler acqusition. It does not bring benefits, but also taking financial risk for company. It will also affect the attractive investment capability and even worse to lead to bankcrupcy.
In the real world, a complex situation impact on the capital structure in the company. Managers have to consider the debt to equity ratio to maxize shareholder wealth, and equal the level of WACC. The taxation is very important index for managers making a decision. They have to concerning the effect of taxation to estimate the percentage of the WACC.
Wall Street reported a news that "Schaeffler cuts stake in Continental to reduce debt" on this Monday. What things caused this huge debt existing? Schaeffler cost 12 billion euros to acquisition its larger viral Continental on August 2008.
What reason causes larger company Continental have to bid with Schaeffler? Because of the Lehman Brothers collapse, the wake of stock market impact on the Continental forced bid with Schaeffler. According to primer CEO of Continental, Manfred Wennemer expressed that he had tired to preserve the independence of the company. So it led to Continental accept bid with Schaeffler on August 2008. Karl-Thomas Neumann instead of Wennemer was a new CEO of Continental on September 2008.
Schaeffler have to delay taking a majority stake until 2012 when they faced those huge debts. In fact, Schaeffler announced that they plan to reduce 15 per cent total stake of Continental to 1.8 billion euros from 12 billion euros recently which caused the share price of Continental up 2.9 per cent. However, they still have nearly 6 billion euros debt from their operation, even cut the cost of acquision to 4.6 billion euros.
Schaeffler launched a takeover bid for Continental in order to maxmize the value of their shareholders. However, increasing huge debt was further burdened by Schaeffler acqusition. It does not bring benefits, but also taking financial risk for company. It will also affect the attractive investment capability and even worse to lead to bankcrupcy.
In the real world, a complex situation impact on the capital structure in the company. Managers have to consider the debt to equity ratio to maxize shareholder wealth, and equal the level of WACC. The taxation is very important index for managers making a decision. They have to concerning the effect of taxation to estimate the percentage of the WACC.
Sunday, 27 March 2011
Investment appraisal tools and decision making
All of investment opportunities will bring the greatest return for shareholders. If managers try to invest a project which is uncertainly to managers making a decision, they have to find a reliable way to reduce the investment risk. There are five investment appraisal tools introduced by this week lecture which are Payback, Accounting Rate of Return (ARR), Discounted Payback, Net Present Value (NPV) and Internal Rate Return (IRR). NPV and IRR which concern the time value of money are much reliable tools compared with others. Furthermore, NPV is better than IRR to maximise shareholder's wealth, because the result is presented completely amount of money through the measure of NPV. However, IRR shows as a percentage returns which could lead wrong project to be rejected.
Sensitivity analysis will give a further analysis which is explaining and illustrating the NPV in the uncertain condition. It supplies formed information for decision makers, and helping them judgment error and preparing to face the risks. In contrast, sensitivity analysis can monitor parameters, but those are wildly limited in a real world. In addition, one of parameter changed lonely while other factors remain stable in the sensitivity analysis. It cannot happen in the real world, in fact, all of these factors are relative closely together, if one of them changed, it should be affected others in the real world.
In the latest news shows Nokia will reload Symbian operating system. It launched the C7 based on Symbian system in Octobor which created more than five million last year (Wall Street, 20110). Symbian was the largest smartphone platform globally before last year. It was passed by Google Inc. operating system last fourth quarter which led to Nokia loose a third smartphone market. So Nokia announced they will invest Windows operating system instead of Symbian's system on February this year. They estimate they could increase the smartphone market share while uses Windows system. In order to let their customers accept the transition process from Symbian system to new system, they will keep Symbian until next year.
A lot of elements affect the choose of the right project by managers. One factor changing will be obtained the wrong project. It pushes managers who have to monitor the process and variety of intangible factors during their decision making.
Sensitivity analysis will give a further analysis which is explaining and illustrating the NPV in the uncertain condition. It supplies formed information for decision makers, and helping them judgment error and preparing to face the risks. In contrast, sensitivity analysis can monitor parameters, but those are wildly limited in a real world. In addition, one of parameter changed lonely while other factors remain stable in the sensitivity analysis. It cannot happen in the real world, in fact, all of these factors are relative closely together, if one of them changed, it should be affected others in the real world.
In the latest news shows Nokia will reload Symbian operating system. It launched the C7 based on Symbian system in Octobor which created more than five million last year (Wall Street, 20110). Symbian was the largest smartphone platform globally before last year. It was passed by Google Inc. operating system last fourth quarter which led to Nokia loose a third smartphone market. So Nokia announced they will invest Windows operating system instead of Symbian's system on February this year. They estimate they could increase the smartphone market share while uses Windows system. In order to let their customers accept the transition process from Symbian system to new system, they will keep Symbian until next year.
A lot of elements affect the choose of the right project by managers. One factor changing will be obtained the wrong project. It pushes managers who have to monitor the process and variety of intangible factors during their decision making.
Sunday, 20 March 2011
Impact on the economy in Japan after earthquake.
Since 2007, financial crisis has occourred from America spread to the world. Even though some American citizens were the careless and inappropriate lenders, more and more them could borrow money from bank to invest on the estate market. . In order to declined the risk of these mortgages, one of collaterals, CDO was attracted by other banks and big organisation to invest it. However, the price of estate collapse caused that huge bad debts existed in banks. Then the domino effect happened by bank tightening of credit. It resulted some banks and corporations bankruptcy, or nationalisation by governments. This was not only affecting the country of America, but also a lot of country around the world, such as Japan.
"Of the six biggest fallers this year on the Global 30, five are Japanese." (BBC News, 2008) Whatever large multinational corporations and small business companies were affecting by this financial crisis. Lack of money in the banking system means no new loans lending to the company. Small company may be susceptible rather than large corporations. Because they do not have access to the capital market, and nearly half of their capital funds came from banks and other depository institutions. It led to Japan which was the worst performance country in all the Asian.
Earthquake, a tragedy accident, occurred in Japan. Their stock market, Tokyo's main index declined 6.2% on this Monday. (Wall Street, 2011)It made the recover from financial crisis in Japan much harder than before the time. The government and public have to face a set of serious problems, such as the power shortages, public transport systems destroying, the demand of public and others. In order to solve these problems as soon as possible, Japanese government injected more than 30 trillion yen to improving internal situation. It caused their exchange rate increased while affected national exports.
In contrast, American stock market increases in NASDAQ due to increasing demand for rebuilding in Japan. They expected gained the benefits from rebuilding of Japanese infrastructure, and purchased the living standard productions. It is a beneficial opportunity to companies and consumers due to rebuild demands and exchange rate declining. Even though, Japan still can recover well efficient through other countries and national succor.
"Of the six biggest fallers this year on the Global 30, five are Japanese." (BBC News, 2008) Whatever large multinational corporations and small business companies were affecting by this financial crisis. Lack of money in the banking system means no new loans lending to the company. Small company may be susceptible rather than large corporations. Because they do not have access to the capital market, and nearly half of their capital funds came from banks and other depository institutions. It led to Japan which was the worst performance country in all the Asian.
Earthquake, a tragedy accident, occurred in Japan. Their stock market, Tokyo's main index declined 6.2% on this Monday. (Wall Street, 2011)It made the recover from financial crisis in Japan much harder than before the time. The government and public have to face a set of serious problems, such as the power shortages, public transport systems destroying, the demand of public and others. In order to solve these problems as soon as possible, Japanese government injected more than 30 trillion yen to improving internal situation. It caused their exchange rate increased while affected national exports.
In contrast, American stock market increases in NASDAQ due to increasing demand for rebuilding in Japan. They expected gained the benefits from rebuilding of Japanese infrastructure, and purchased the living standard productions. It is a beneficial opportunity to companies and consumers due to rebuild demands and exchange rate declining. Even though, Japan still can recover well efficient through other countries and national succor.
Sunday, 13 March 2011
Exxon Mobil acquired XTO Energy Inc. in 2010
As we have learned, M&A to be a form of investment, benefits acquirers enhancing their market power, taking tax advantage aspects, and increasing their probability. Exxon Mobil, the largest multinational oil and gas company in U.S. bid XTO Energy paid all stock transaction which valued nearly $41 billion. Is really benefit about this acquisition to Exxon Mobil Corporation?
First, XTO Energy provided reserves 54% natural gas and 47% oil for a total of $24.8 billion oil-equivalent barrels in 2010. Through Exxon Mobil bid with XTO, Exxon Mobil's reserves additions in 2010 were the highest since the merger of Exxon and Mobil in 1999. Exxon Mobil has to cut their annual capital spending up 6% to $34 billion this year due to the financial crisis in U.S. However, Exxon Mobil still gain the benefits from their operation turnover which one part comes from high quality projects and the successful integration of XTO. The CEO of Exxon Mobil said production volumes growth of XTO made their forecast which was increase their production between 2% to 3% a year from 2009 to 2013 became true.
Secondly, as Hutton who was former CEO of XTO claimed that “XTO’s employees bring the ability to enhance ExxonMobil’s global operations through the vast experience they have gained in innovative and efficient resource development in the United States.” This was enhancing the global development capability from XTO for Exxon Mobil.
Thirdly, XTO could provide the production of unconventional resources to Exxon Mobil to instead of their conventional resources which have to explore from deep water well drilling. A rig drilling for their rival European oil company BP in the U.S Gulf of Mexico exploded which caused 11 people killed and the worst marine oil spill in the history. So Exxon Mobil had to wait the government solve this issue to permit them drill exploratory deep water wells. They continued confirmed that deep water operations were not an issue for this industry. They wish government back the confident to deep water operations.
The value of stakeholders stands the same position as their shareholders in the company. As Exxon Mobil Senior Vice President said the "company 'fully expects' that its unconventional assets will provide material production growth and attractive returns for shareholders." M&A action are not only consider the benefit for the two sides company, but also the environment of society and the public benefits.
First, XTO Energy provided reserves 54% natural gas and 47% oil for a total of $24.8 billion oil-equivalent barrels in 2010. Through Exxon Mobil bid with XTO, Exxon Mobil's reserves additions in 2010 were the highest since the merger of Exxon and Mobil in 1999. Exxon Mobil has to cut their annual capital spending up 6% to $34 billion this year due to the financial crisis in U.S. However, Exxon Mobil still gain the benefits from their operation turnover which one part comes from high quality projects and the successful integration of XTO. The CEO of Exxon Mobil said production volumes growth of XTO made their forecast which was increase their production between 2% to 3% a year from 2009 to 2013 became true.
Secondly, as Hutton who was former CEO of XTO claimed that “XTO’s employees bring the ability to enhance ExxonMobil’s global operations through the vast experience they have gained in innovative and efficient resource development in the United States.” This was enhancing the global development capability from XTO for Exxon Mobil.
Thirdly, XTO could provide the production of unconventional resources to Exxon Mobil to instead of their conventional resources which have to explore from deep water well drilling. A rig drilling for their rival European oil company BP in the U.S Gulf of Mexico exploded which caused 11 people killed and the worst marine oil spill in the history. So Exxon Mobil had to wait the government solve this issue to permit them drill exploratory deep water wells. They continued confirmed that deep water operations were not an issue for this industry. They wish government back the confident to deep water operations.
The value of stakeholders stands the same position as their shareholders in the company. As Exxon Mobil Senior Vice President said the "company 'fully expects' that its unconventional assets will provide material production growth and attractive returns for shareholders." M&A action are not only consider the benefit for the two sides company, but also the environment of society and the public benefits.
Sunday, 6 March 2011
Is a good or bad decision of Best Buy entring into the Chinese electronic market?
Foreign Direct Investment (FDI) is one measure of foreign investments for growing economic globalization. Greenfield investment and international M&A are the main style for FDI. As the society developing, new acquisition opportunities are created by improving the financial situation of TNCs, ongoing corporate and industrial restructuring (World Investment Report, 2010). These conditions make new trend that M&A hold more proportion than Greenfield investment around the world. The World Investment Report also revealed the trend of geography that China which increased nearly 12 billion from 2008 to 2009 became the second largest foreign investment recipients in the world in 2009.
There are some main reasons attracting FDI prefer choose entry into China, such as low labor price, stable policy environment and huge consumable market. Best Buy which is the largest US electronic retailer entered into China according to bid a local company in Shanghai in 2006, then first retail store opened in Shanghai. Since 2006, the Best Buy expands the market share slowly in China, comparing its main competitors, GOME Electrical Appliances Holding and Suning Appliance Chain Store Co. Ltd. Furthermore, Best Buy announced that they closed all of their retail shops in China on February 2011. They could not find a useful mode to satisfied demand of customers. They pay more attention on service, not the price of goods, which costs too much spending for the company. The situation of continuing loose compelled they move out the Chinese electronic market.
Best Buy have to concern more situations about local consuming and do not all copy the management method from their parent company. A multinational company have to get more known about the local culture and their core competitors if they want to increase their profitability from foreign market. Some of companies invest from developed, not only European and North-American countries, trend to developing countries. Even though they owed advanced technology and management experience, they still loose their profit in developing countries.
TNCs of FDI has some advantages for both parent companies and investment recipient countries, such as rising the value of their shareholder through the expand in foreign countries, improving the export for recipient countries and proving the economic growth for recipient countries. FDI has played an important role of a number of countries' economic fortunes around the world.
There are some main reasons attracting FDI prefer choose entry into China, such as low labor price, stable policy environment and huge consumable market. Best Buy which is the largest US electronic retailer entered into China according to bid a local company in Shanghai in 2006, then first retail store opened in Shanghai. Since 2006, the Best Buy expands the market share slowly in China, comparing its main competitors, GOME Electrical Appliances Holding and Suning Appliance Chain Store Co. Ltd. Furthermore, Best Buy announced that they closed all of their retail shops in China on February 2011. They could not find a useful mode to satisfied demand of customers. They pay more attention on service, not the price of goods, which costs too much spending for the company. The situation of continuing loose compelled they move out the Chinese electronic market.
Best Buy have to concern more situations about local consuming and do not all copy the management method from their parent company. A multinational company have to get more known about the local culture and their core competitors if they want to increase their profitability from foreign market. Some of companies invest from developed, not only European and North-American countries, trend to developing countries. Even though they owed advanced technology and management experience, they still loose their profit in developing countries.
TNCs of FDI has some advantages for both parent companies and investment recipient countries, such as rising the value of their shareholder through the expand in foreign countries, improving the export for recipient countries and proving the economic growth for recipient countries. FDI has played an important role of a number of countries' economic fortunes around the world.
Sunday, 27 February 2011
The impacts of the yuan raising which is being purshed by foreign powers.
According to Wall Street Journal demonstrated that it is not only the West country but also developing country both pushed China revaluation of its currency. A G-20 central banker pursued "they should seek consensus rather than confrontation." They expected China will allow its currency to rising more rapidly. Because they believed that revaluation of the Yuan will help them to against the effect of their inflation, and to increase their import.
Since 2007, China shifts its exchange rate policies to managed floating exchange rate regime, made a more flexible exchange rate environment. Dollar became more and more weakness to against Yuan from $8 to $6 until now. Furthermore, there are many impacts exist in the domestic economic environment. Export is the significant part affected by Chinese exchange rate rising. There are 30 per cent of GDP from exports. It can be shown how important export is in China. Processing trade has occupied 50 per cent of export in China. Lower labor, lower price are the main characters for processing trade to compete with other competitors. Revaluation of Yuan will improve them products quality, and hence their competitive capability in the market. It also bought a huge increase pressure on China's export business in the short time. The processing trade will lose their main competitive factor, low price.
On the other hand, great deals of foreign refugee capital will entry into the estate market and stock market in China according to Chinese currency raising. It also become threaten for the Chinese economic market risk management.
China is a one of large export countries around the world. However, their export tax policy still limit parts of resources export leaving from China. It will protect the demand of domestic and the competitive price between home and foreign countries.
In a conclusion, Chinese government has to face a serious of problems made them hardly pick up the currency raising. The export company lack of the core preponderant competitive ability. Chinese financial market does not maturate opening to foreign investors. They have not ability to accept too much capital into the market. And the issue of inflation in China waits for solving to encourage people depositing their funds into the bank. Is it exist a way to reduce the pressure from other European countries or US raising currency, while improves domestic economic growth?
Since 2007, China shifts its exchange rate policies to managed floating exchange rate regime, made a more flexible exchange rate environment. Dollar became more and more weakness to against Yuan from $8 to $6 until now. Furthermore, there are many impacts exist in the domestic economic environment. Export is the significant part affected by Chinese exchange rate rising. There are 30 per cent of GDP from exports. It can be shown how important export is in China. Processing trade has occupied 50 per cent of export in China. Lower labor, lower price are the main characters for processing trade to compete with other competitors. Revaluation of Yuan will improve them products quality, and hence their competitive capability in the market. It also bought a huge increase pressure on China's export business in the short time. The processing trade will lose their main competitive factor, low price.
On the other hand, great deals of foreign refugee capital will entry into the estate market and stock market in China according to Chinese currency raising. It also become threaten for the Chinese economic market risk management.
China is a one of large export countries around the world. However, their export tax policy still limit parts of resources export leaving from China. It will protect the demand of domestic and the competitive price between home and foreign countries.
In a conclusion, Chinese government has to face a serious of problems made them hardly pick up the currency raising. The export company lack of the core preponderant competitive ability. Chinese financial market does not maturate opening to foreign investors. They have not ability to accept too much capital into the market. And the issue of inflation in China waits for solving to encourage people depositing their funds into the bank. Is it exist a way to reduce the pressure from other European countries or US raising currency, while improves domestic economic growth?
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