DOCSLIB.ORG

Global Offering of 5,000,000 Ordinary Bearer Shares Offer Price 1 8.00

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Global Offering of 5,000,000 Ordinary Bearer Shares Offer Price 1 8.00 Global Offering of 5,000,000 Ordinary Bearer Shares Offer Price 1 8.00 per Share This international offering is part of an initial public offering (the ‘‘Offering’’) of 5,000,000 newly issued no par value ordinary bearer shares of PAION AG, a stock corporation (Aktiengesellschaft) incorporated in the Federal Republic of Germany (the ‘‘New Shares’’), by way of a global offering. The Offering also includes a public offering in the Federal Republic of Germany pursuant to a separate offering circular in the German language and a public offering in Switzerland. The initial public offer price (the ‘‘Offer Price’’) for the Offered Shares in the international offering is the same as in the public offerings in the Federal Republic of Germany and in Switzerland. All of our ordinary bearer shares were admitted to trading on the official market segment (amtlicher Markt) (the ‘‘Official Market Segment’’) of the Frankfurt Stock Exchange under the symbol PA8 on February 9, 2005. It is expected that trading in our shares will commence on or about February 11, 2005. Prior to the Offering, there has been no public market for our shares. The Offered Shares are being offered severally by UBS Limited (the ‘‘Global Coordinator’’ or ‘‘UBS Investment Bank’’) on behalf of the other banks specified herein (together with the Global Coordinator, the ‘‘Underwriters’’), subject to their right to reject any order in whole or in part and subject to their receipt of the Offered Shares from us. It is expected that payment for and delivery of the Offered Shares will be made on or about February 11, 2005 through Clearstream Banking AG, Frankfurt am Main. Investing in our shares involves risks. See ‘‘Risk Factors’’ beginning on page 18. In connection with the Offering, we have granted the Underwriters an option to subscribe for up to an additional 750,000 of our ordinary bearer shares (the ‘‘Greenshoe Shares’’ and, together with the New Shares, the ‘‘Offered Shares’’) at the Offer Price (the ‘‘Over-Allotment Option’’). The Over-Allotment Option is exercisable for a period beginning on the date that our ordinary bearer shares commence trading on the Official Market Segment of the Frankfurt Stock Exchange and ending 30 calendar days thereafter. The Offered Shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the ‘‘Securities Act’’), and are being offered and sold only pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, including in the United States to qualified institu- tional buyers (‘‘QIBs’’) in reliance on Rule 144A under the Securities Act (‘‘Rule 144A’’) and outside the United States in offshore transactions in reliance on Regulation S under the Securities Act (‘‘Regulation S’’). For a description of the restrictions on resale and transfer of the Offered Shares, see ‘‘Notice to Investors and Transfer Restrictions’’. Global Coordinator and Bookrunner UBS Investment Bank Co-Lead Manager Dresdner Kleinwort Wasserstein Co-Manager Landesbank Baden-Wurttemberg¨ Selling Agent Sparkasse Aachen Offering Circular, dated February 9, 2005 [This Page Intentionally Left Blank] In making an investment decision, investors should rely on their own examination of our company and the terms of the Offering, including the merits and risks involved. Any decision to buy Offered Shares should be based solely on this offering circular (the ‘‘Offering Circular’’). Our shares have not been approved, disap- proved or recommended by any federal or state securities commission or regulatory authority of the United States. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this Offering Circular. Any representation to the contrary is a criminal offense. No person has been authorized to give any information or to make any representations in connection with this international offering other than those contained in this Offering Circular. If any information is given or any representations are made, such information or representations must not be relied upon as having been authorized by us or the Global Coordinator, the Underwriters, any of their respective affiliates, advisors or selling agents or any other person. At any time following the date of this Offering Circular, the information contained in this Offering Circular may no longer be correct and our affairs may have changed. No representation or warranty, express or implied, is made by the Global Coordinator, the Underwriters or any of their respective affiliates, advisors or selling agents as to the accuracy or completeness of the informa- tion set forth in this Offering Circular, and nothing contained herein is, or shall be relied upon as, a promise or representation by any of the Global Coordinator, the Underwriters or any of their respective affiliates, advisors or selling agents. No representation is made by us, the Global Coordinator, the Underwriters or any of our or their respective representatives to prospective investors as to the legality of an investment in the Offered Shares, and prospective investors should not construe anything in this Offering Circular as legal, business or tax advice. Prospective investors should consult their own advisors as to the legal, tax, business, financial and related aspects of an investment in the Offered Shares. This Offering Circular has been prepared solely for use in connection with the international offering. This Offering Circular is personal to each offeree and does not constitute an offer to any persons or to the public generally to purchase or otherwise acquire Offered Shares. Distribution of this Offering Circular to any person other than the offeree and those persons, if any, retained to advise such offeree with respect thereto is unauthorized and any disclosure of any of its contents, without our prior written consent, is prohibited. Each prospective investor, by accepting delivery of this Offering Circular, agrees to the foregoing and to make no photocopies of this Offering Circular. This Offering Circular does not constitute or form part of an offer to sell, or a solicitation of an offer to buy, any security other than the Offered Shares. The distribution of this Offering Circular and the offering of shares may, in certain jurisdictions, be restricted by law and this Offering Circular may not be used for the purpose of, or in connection with, any offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized, or to any person to whom it is unlawful to make such an offer or solicitation. Persons into whose possession this Offering Circular comes are required to inform themselves of and observe all such restrictions. Neither we nor the Global Coordinator nor any of the Underwriters accept any legal responsibility for any violation by any person, whether or not a prospective investor, of any such restrictions. No action has been or will be taken in any jurisdiction other than the Federal Republic of Germany or Switzerland that would permit a public offering of the Offered Shares or the possession, circulation or distribution of this Offering Circular or any other material relating to us or the Offered Shares in any jurisdiction where action for that purpose is required. Accordingly, the Offered Shares may not be offered or sold, directly or indirectly, and neither this Offering Circular nor any other offering material or advertise- ments in connection with the Offered Shares may be distributed or published in or from any country or jurisdiction except under circumstances that would result in compliance with any applicable rules and regulations of any such country or jurisdiction. The Offered Shares have not been and will not be registered under the Securities Act, or with any securities authority of any state of the United States, and may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable state securities laws. The Offered Shares are only being offered pursuant to exemptions from, or in transactions not subject to, registration, including (i) in the United States only to QIBs in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A and (ii) outside the United States only in offshore transactions (as defined in, and in accordance with, Regula- tion S). Prospective investors are hereby notified that sellers of the Offered Shares may be relying on the 1 exemption from the registration provisions of Section 5 of the Securities Act provided by Rule 144A. For certain restrictions on resales, see ‘‘Notice to Investors and Transfer Restrictions’’. In connection with the Offering, the Global Coordinator may, for the account of the Underwriters, over-allot or effect transactions with a view to supporting the market price of our shares at levels above those that might otherwise prevail in the open market for a limited period after the first day of trading of our shares on the Frankfurt Stock Exchange. Such transactions may be effected on the Frankfurt Stock Exchange, in the over- the-counter market or otherwise, and shall be carried out in accordance with applicable rules and regulations. Such stabilizing, if commenced, may be discontinued at any time without prior notice and will in any event be discontinued 30 calendar days after the first day of trading of our shares on the Frankfurt Stock Exchange. Notice to Investors and Transfer Restrictions Because of the following restrictions, prospective purchasers of the Offered Shares are advised to consult legal counsel prior to making any offer, resale, pledge or other transfer of the Offered Shares. Each purchaser of the Offered Shares will be deemed to have represented and agreed as follows (terms used herein that are defined in Rule 144A or Regulation S are used herein as defined therein): 1.
Load more

Recommended publications
  • The Promise and Peril of Real Options
    1 The Promise and Peril of Real Options Aswath Damodaran Stern School of Business 44 West Fourth Street New York, NY 10012 [email protected] 2 Abstract In recent years, practitioners and academics have made the argument that traditional discounted cash flow models do a poor job of capturing the value of the options embedded in many corporate actions. They have noted that these options need to be not only considered explicitly and valued, but also that the value of these options can be substantial. In fact, many investments and acquisitions that would not be justifiable otherwise will be value enhancing, if the options embedded in them are considered. In this paper, we examine the merits of this argument. While it is certainly true that there are options embedded in many actions, we consider the conditions that have to be met for these options to have value. We also develop a series of applied examples, where we attempt to value these options and consider the effect on investment, financing and valuation decisions. 3 In finance, the discounted cash flow model operates as the basic framework for most analysis. In investment analysis, for instance, the conventional view is that the net present value of a project is the measure of the value that it will add to the firm taking it. Thus, investing in a positive (negative) net present value project will increase (decrease) value. In capital structure decisions, a financing mix that minimizes the cost of capital, without impairing operating cash flows, increases firm value and is therefore viewed as the optimal mix.
    [Show full text]
  • How Risky Is the Debt in Highly Leveraged Transactions?*
    Journal of Financial Economics 27 (1990) 215-24.5. North-Holland How risky is the debt in highly leveraged transactions?* Steven N. Kaplan University of Chicago, Chicago, IL 60637, USA Jeremy C. Stein Massachusetts Institute of Technology Cambridge, MA 02139, USA Received December 1989, final version received June 1990 This paper estimates the systematic risk of the debt in public leveraged recapitalizations. We calculate this risk as a function of the difference in systematic equity risk before and after the recapitalization. The increase in equity risk is surprisingly small after a recapitalization, ranging from 37% to 57%, depending on the estimation method. If total company risk is unchanged, the implied systematic risk of the post-recapitalization debt in twelve transactions averages 0.65. Alternatively, if the entire market-adjusted premium in the leveraged recapitalization represents a reduction in fixed costs, the implied systematic risk of this debt averages 0.40. 1. Introduction Highly leveraged transactions such as leveraged buyouts (LBOs) and lever- aged recapitalizations have grown explosively in number and size over the last several years. These transactions are largely financed with a combination of senior bank debt and subordinated lower-grade or ‘junk’ debt. Recently, the debt in these transactions has come under increasing scrutiny from investors, politicians, and academics. All three groups have asked in one way or another how risky leveraged buyout debt is in relation to the return it *Cedric Antosiewicz provided excellent research assistance. Paul Asquith, Douglas Diamond, Eugene Fama, Wayne Person, William Fruhan (the referee), Kenneth French, Robert Korajczyk, Richard Leftwich, Jeffrey Mackie-Mason, Merton Miller, Stewart Myers, Krishna Palepu, Richard Ruback (the editor), Andrei Shleifer, Robert Vishny, and seminar participants at the Securities and Exchange Commission, the University of Chicago, and MIT’s Sloan School made helpful comments on earlier drafts.
    [Show full text]
  • Net Present Value (NPV): the Basics & the Pitfalls
    Presented at the 2013 ICEAA Professional Development & Training Workshop - www.iceaaonline.com Net Present Value (NPV): The Basics & The Pitfalls Cobec Consulting Kevin Schutt, Manager Nathan Honsowetz, Consultant ICEAA Conference, June 2013 Agenda Presented at the 2013 ICEAA Professional Development & Training Workshop - www.iceaaonline.com 2 Time Value of Money Presented at the 2013 ICEAA Professional Development & Training Workshop - www.iceaaonline.com Discount Factor “A nearby penny is worth a distant dollar” ‐ Anonymous 3 Time Value of Money Presented at the 2013 ICEAA Professional Development & Training Workshop - www.iceaaonline.com Year 1 2 3 4 FV1 FV2 FV3 FV4 PV1 PV2 PV3 PV4 4 Inputs to NPV Presented at the 2013 ICEAA Professional Development & Training Workshop - www.iceaaonline.com 5 NPV Example Presented at the 2013 ICEAA Professional Development & Training Workshop - www.iceaaonline.com 6 Investment Alternatives Presented at the 2013 ICEAA Professional Development & Training Workshop - www.iceaaonline.com If NPV > 0 No correlation IRR > Cost of Capital Benefit/Cost > 1 7 Economic Analysis Regulations Presented at the 2013 ICEAA Professional Development & Training Workshop - www.iceaaonline.com 8 NPV in the Private Sector Presented at the 2013 ICEAA Professional Development & Training Workshop - www.iceaaonline.com 9 Net Present Value: The Pitfalls Presented at the 2013 ICEAA Professional Development & Training Workshop - www.iceaaonline.com Pitfall! Activision, 1982 10 NPV Pitfall #1: Formula error Presented at the 2013 ICEAA
    [Show full text]
  • Financial Market Analysis (Fmax) Module 2
    Financial Market Analysis (FMAx) Module 2 Bond Pricing This training material is the property of the International Monetary Fund (IMF) and is intended for use in IMF Institute for Capacity Development (ICD) courses. Any reuse requires the permission of the ICD. The Relevance to You You might be… § An investor. § With an institution that is an investor. You may be managing a portfolio of foreign assets in a sovereign wealth fund or in a central bank. § With an institution that is in charge of issuing sovereign bonds. § With an institution that is a financial regulator. Defining a Bond – 1 A bond is a type of fixed income security. Its promise is to deliver known future cash flows. § Investor (bondholder) lends money (principal amount) to issuer for a defined period of time, at a variable or fixed interest rate § In return, bondholder is promised § Periodic coupon payments (most of the times paid semiannually); and/or § The bond’s principal (maturity value/par value/face value) at maturity. Defining a Bond – 2 Some bond have embedded options. § Callable Bond: The issuer can repurchase bond at a specific price before maturity. § Putable Bond: Bondholder can sell the issue back to the issuer at par value on designated dates (bond with a put option). Bondholder can change the maturity of the bond. Central Concept: Present Value The Present Value is… § The value calculated today of a series of expected cash flows discounted at a given interest rate. § Always less than or equal to the future value, because money has interest- earning potential: time value of money.
    [Show full text]
  • Study Guide Corporate Finance
    Study Guide Corporate Finance By A. J. Cataldo II, Ph.D., CPA, CMA About the Author A. J. Cataldo is currently a professor of accounting at West Chester University, in West Chester, Pennsylvania. He holds a bachelor degree in accounting/finance and a master of accounting degree from the University of Arizona. He earned a doctorate from the Virginia Polytechnic Institute and State University. He is a certified public accountant and a certified management accountant. He has worked in public accounting and as a government auditor and controller, and he has provided expert testimony in business litigation engage- ments. His publications include three Elsevier Science monographs, and his articles have appeared in Journal of Accountancy, National Tax Journal, Research in Accounting Regulation, Journal of Forensic Accounting, Accounting Historians Journal, and several others. He has also published in and served on editorial review boards for Institute of Management Accounting association journals, including Management Accounting, Strategic Finance, and Management Accounting Quarterly, since January 1990. All terms mentioned in this text that are known to be trademarks or service marks have been appropriately capitalized. Use of a term in this text should not be regarded as affecting the validity of any trademark or service mark. Copyright © 2015 by Penn Foster, Inc. All rights reserved. No part of the material protected by this copyright may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the copyright owner. Requests for permission to make copies of any part of the work should be mailed to Copyright Permissions, Penn Foster, 925 Oak Street, Scranton, Pennsylvania 18515.
    [Show full text]
  • Net Present Value (NPV) Analysis
    PROGRAMME LIFECYCLE STRATEGIC PHASE DELIVERY PHASE INITIATION DEFINITION ESTABLISHMENT MANAGEMENT DELIVERY STAGE CLOSE STAGE STAGE STAGE STAGE PROGRAMME PROGRAMME PROGRAMME PROGRAMME FEASIBILITY DESIGN IMPLEMENTATION CLOSEOUT STAGE OBJECTIVES SCOPING PRIORITISATION OPTIMISATION NPV 1 NPV 2 Programme Prioritisation Net Present Value (NPV) analysis Helping our clients prioritise programmes and projects. By the Introduction of a Financial prioritisation model using NPV analysis What is NPV analysis? Where Does NPV analysis Fit into the Overall Programme Cycle? Net Present Value (NPV) is an effective front end management tool for a programme of works. It’s primary role The 1st NPV process is positioned at the front end of a capital is to confirm the Financial viability of an investment over a programme (NPV1 below). It allows for all projects within a long time period, by looking at net Discounted cash inflows programme to be ranked on their Net Present Values. Many and Discounted cash outflows that a project will generate organisations choose to use Financial ratio’s to help prioritise over its lifecycle and converting these into a single Net initiatives and investments. Present Value. (pvi present value index) for comparison. The 2nd NPV process takes place at the Feasibility stage of A positive NPV (profit) indicates that the Income generated a project where a decision has to be made over two or more by the investment exceeds the costs of the project. potential solutions to a requirement (NPV 2 below). For each option the NPV should be calculated and then used in the A negative NPV (loss) indicates that the whole life costs of evaluation of the solution decision.
    [Show full text]
  • Excellent Start to 2007
    Stockholders’ Newsletter Interim Report as of March 31, 2007 and Report on the Annual Stockholders’ Meeting of Bayer AG on April 27, 2007 in Cologne Excellent start to 2007 Group Management Report as of March 31, 2007 cover picture Bayer accords high priority to cli- R Bayer Group Key Data 2 mate protection as part of its su- R Financial Calendar, Masthead 3 stainability strategy. The company R Overview of Sales, Earnings and Financial Position 4 has adopted a range of measures R Future Perspectives 6 to help reduce greenhouse gas emis- R Performance by Subgroup and Segment 6 sions, with many of its products also playing an active role in this R Bayer HealthCare 8 respect. For example, Bayer pro- R Bayer CropScience 14 ducts protect many agricultural R Bayer MaterialScience 18 crops that serve as sources of the R Performance by Region 20 renewable ñ and therefore climate- R Liquidity and Capital Resources 22 friendly ñ raw materials from which R Employees 24 biofuels are produced. Our resear- chers are also studying plants that R Legal Risks 25 are rich sources of energy and are R Subsequent Events 28 not used for food production. The R Calculation of ebit(da) Before Special Items 29 “Focus” article on page 68 f of this R Investor Information 30 issue also deals with the topic of climate protection. Consolidated Financial Statements as of March 31, 2007 R Bayer Group Statements of Income 32 R Bayer Group Balance Sheets 33 R Bayer Group Statements of Cash Flows 34 R Bayer Group Statements of Recognized Income and Expense 35 R Key Data by Segment and Region 36 R Notes to the Interim Report as of March 31, 2007 38 R Address by Werner Wenning to the 2007 Annual Stockholders’ Meeting 41 R Report on the 2007 Annual Stockholders’ Meeting 62 For direct access R Focus on Climate Protection 68 8 to a chapter, simply click on its name.
    [Show full text]
  • FINANCIAL ANALYSIS a Controller’S Guide Second Edition
    ffirs.qxd 10/16/06 4:13 PM Page iii FINANCIAL ANALYSIS A Controller’s Guide Second Edition Steven M. Bragg John Wiley & Sons, Inc. ffirs.qxd 10/16/06 4:13 PM Page ii ffirs.qxd 10/16/06 4:13 PM Page i FINANCIAL ANALYSIS Second Edition ffirs.qxd 10/16/06 4:13 PM Page ii ffirs.qxd 10/16/06 4:13 PM Page iii FINANCIAL ANALYSIS A Controller’s Guide Second Edition Steven M. Bragg John Wiley & Sons, Inc. ffirs.qxd 10/16/06 4:13 PM Page iv This book is printed on acid-free paper. ࠗ∞ Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmit- ted in any form or by any means, electronic, mechanical, photocopying, recording, scan- ning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600, or on the web at www.copyright.com. Requests to the Publisher for per- mission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, or online at http://www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically dis- claim any implied warranties of merchantability or fitness for a particular purpose.
    [Show full text]
  • Present Value (Fixed Interest Rate): the Arb Fixed-Income Securities Lecture 2
    Various interest rates Fixed-income Securities We will start with the nuts and bolts of fixed-income securities by having a look at Lecture 2: Basic Terminology and Concepts the definitions and inter-relations of various interest rates. Talking about interest Philip H. Dybvig rates instead of prices is important for intuition, communication, and calculation. Washington University in Saint Louis For example, quoting a bond yield is much more comparable across maturities, size, and coupon rate than quoting a price. In this lecture, we will focus on a clear • Various interest rates description of the concepts, leaving some institutional details to next lecture. • Present value (PV) and arbitrage During this lecture, we consider looking at trades made at one date for claims to nonrandom cash flows at future dates. Although no explicit mention of uncer- • Forward and spot interest rates tainty will be made, we will learn later that beliefs about future random realiza- • discount factors and discount rates tions are implicit in prices quoted today. • par coupon yields Central to our understanding will be notions of present value and arbitrage, so we start our discussion with what is probably a review of these topics. Copyright c Philip H. Dybvig 2000 Present value (fixed interest rate) Present value (fixed interest rate): the arb Suppose the interest rate is fixed at r, and that we can obtain the riskless cash Continuing from the last slide, if the market value is low (p < P V ), then flows of c1 > 0 one year from now and c2 > 0 two years from now for a price of intuitively we want to buy, but this may interfere with our other plans (to use p > 0 today.
    [Show full text]
  • Net Present Value Examples and Solutions
    Net Present Value Examples And Solutions Corneous Leonhard never high-hatted so full-time or pacifies any cantatrice epidemically. Shut Rex impoverish, his rest-cures moves syllabizes wonderfully. Iconic and architectural Manfred nudges her micrococcus eviscerating or resupplying beadily. Fcfe model and other stocks are screened by profitability index increase in percentage of municipal real treasury bonds and solutions and net present value To evaluate the venture would be compared to calculate the calculation, such projects being discounted to a just a valuable than the money earned by one way to and net present value solutions. The time value is the best educated offices in value and decide whether payment occurs at the project or bad in. Nominal discount rates should be used for any that is based on constant year dollars. Net working capital needs to their widespread use but with examples and the cash flows some stocks as lucrative if necessary funding for multiple can be. The key input in this present value excel function is each payment is given a period. Calculate net present value. At high discount rates, due to several reasons. Because Projects and have the same initial investment, it means that the discounted present value of all future cash flows related to that project or investment will be positive, those conditions will most likely change over time for multiple reasons. The basic tenet of the net present value method is that a dollar in the future is not worth as much as one dollar today. What is the cost of preferred stock? Some projects simply must finish on time! Which one catchy figure out and solutions and the uncertainties to inflation.
    [Show full text]
  • End of Chapter Solutions Corporate Finance 8Th Edition Ross, Westerfield, and Jaffe
    End of Chapter Solutions Corporate Finance 8th edition Ross, Westerfield, and Jaffe Updated 11-21-2006 CHAPTER 1 INTRODUCTION TO CORPORATE FINANCE Answers to Concept Questions 1. In the corporate form of ownership, the shareholders are the owners of the firm. The shareholders elect the directors of the corporation, who in turn appoint the firm’s management. This separation of ownership from control in the corporate form of organization is what causes agency problems to exist. Management may act in its own or someone else’s best interests, rather than those of the shareholders. If such events occur, they may contradict the goal of maximizing the share price of the equity of the firm. 2. Such organizations frequently pursue social or political missions, so many different goals are conceivable. One goal that is often cited is revenue minimization; i.e., provide whatever goods and services are offered at the lowest possible cost to society. A better approach might be to observe that even a not-for-profit business has equity. Thus, one answer is that the appropriate goal is to maximize the value of the equity. 3. Presumably, the current stock value reflects the risk, timing, and magnitude of all future cash flows, both short-term and long-term. If this is correct, then the statement is false. 4. An argument can be made either way. At the one extreme, we could argue that in a market economy, all of these things are priced. There is thus an optimal level of, for example, ethical and/or illegal behavior, and the framework of stock valuation explicitly includes these.
    [Show full text]
  • The Real Options Approach to Evaluating a Risky Investment by a New Generation Cooperative: Further Processing By
    The Real Options Approach to Evaluating a Risky Investment by a New Generation Cooperative: Further Processing by Michael D. Bailey and Thomas L. Sporleder1 Abstract Farmers continue to be interested in opportunities for value added production through further processing. New Generation Cooperatives (NGCs) offer member commitment through up-front capital contributions on the part of members. For a potential start-up NGC, one of new and novel issues that face the management of an NGC is making project commitments against the total capital available, both equity and debt capital. Because of the up-front capital commitment by members, NGCs invite managers to make commitments in phases, rather than one initial go or no-go decision. Thus, the capital decision is complex and requires managerial vision in terms of an uncertain world beset by constant shifts in prices, interest rates, consumer tastes, and technology. This paper considers a novel means of evaluating this investment decision, one that encompasses risk components mentioned above. When the outcome of an investment is least certain, real options analysis has the greatest potential analytic value. As time goes by and prospects for an underlying investment become clearer, the value of an option diminishes. The methodology of real options is novel because it encourages managers, at time t, to weigh equally all imaginable alternatives, good and bad. A project’s net present value (NPV) is simply the difference between the project’s value and its cost. By definition of the NPV rule, managers should accept all projects with a net present value greater than zero. The distinction between real options and conventional decision-making arises in that the standard net present value rule does not take into account managerial flexibility over time.
    [Show full text]