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Net Present Volume, Mergers and Acquisitions

Part I:

Net Present Value (NPV) method is one of the most important methods used to make capital budgeting decisions by almost every company. NPV method is important because it helps financial managers maximize shareholders' wealth by making better capital budgeting decisions.

Suppose Micron Technology (NasdaqGS: MU - http://finance.yahoo.com/q?s=MU&ql=1) is considering a new project that will cost $2,425,000 (initial cash outflow). The company has provided the following cash-flow figures:

Year
Cash Flow

0
-$2,425,000

1
450,000

2
639,000

3
700,000

4
550,000

5
1,850,000

If Micron Technology's cost of capital (discount rate) is 11%, what is the project's net present value? Based on your analysis and findings, what would you recommend to the executives and the shareholders of Micron Technology? Should the project be accepted? The shareholders of Micron Technology would also like to know the meaning of NPV concept.

You may use the following steps to calculate NPV:

1) Calculate present value (PV) of cash inflow (CF)

PV of CF = CF1 / (1+r)1 + CF2 / (1+r)2 + CF3 / (1+r)3 + CF4 / (1+r)4 + CF5 / (1+r)5

2) Calculate NPV

NPV = Total PV of CF - Initial cash outflow

or

-Initial cash outflow + Total PV of CF

r = Discount rate (9%)

If you do not know how to use a calculator for these calculations, please use the present value tables.

Brealey, R.A., Myers, S.C., & Allen, F. (2005). Principles of corporate finance, 8th Edition. The McGraw−Hill. Retrieved May 2012 from http://jcooney.ba.ttu.edu/fin3322/Brealey%20Files/Appendix%20A%20-%20Present%20Value%20Tables.pdf (Use Table 1)

Part II:

Elpida Memory in Talks to Merge with Micron Technology and Nanya Technology

Rumors about potential mergers are often a hot topic in the business press. Japan's Elpida Memory (ELPDF.PK - http://ca.finance.yahoo.com/q?s=ELPDF.PK&ql=1) is in talks to merge with U.S. firm Micron Technology (NasdaqGS: MU.O - http://ca.finance.yahoo.com/q?s=MU&ql=0) and Taiwan's Nanya Technology (2408.TW - http://ca.finance.yahoo.com/q?s=2408.TW&ql=0).

As you know from reading the background materials, mergers not only can bring about great rewards, but also great risks and pitfalls. For this assignment, research the arguments both for and against such a merger from a financial perspective. For this module we are not as concerned with how consumers may fare, as this is an issue for the government to consider if it has to approve the merger. Instead, consider the question from the point of view of whether or not such a merger would be a profitable undertaking that would add value to the shareholders of three corporations (Elpida Memory, Micron Technology, and Nanya Technology).

The following article provides information on the potential mergers of Elpida Memory, Micron Technology, and Nanya Technology:

Reynolds, I., Kubo, N., Fuse, T., & Shiraki, M. (2012). Elpida in talks to merge with Micron, Nanya: Report. Retrieved August 2012 from http://www.reuters.com/article/2012/01/24/us-elpida-idUSTRE80M2IZ20120124

Do not limit yourself to this article. Use ProQuest, EBSCO Web, and other sources in the CyberLibrary. Use various Internet search engines such as news.google.com for the latest news on this merger. Look at the Web pages for Yahoo and Microsoft. Then write a 5- to 7-page report for the shareholders of Elpida Memory, Micron Technology, and Nanya Technology by answering the following questions and the questions in Part I:

1) Do you think Elpida Memory's merger with Micron Technology and Nanya Technology would add value for the shareholders of all three corporations?

2) Based on your analysis and findings (Part I and Part II), what would you recommend to the shareholders of Elpida Memory, Micron Technology, and Nanya Technology corporations? Should all three companies merge? Explain your reasoning.

The main focus of this assignment will be answering the questions above and the questions in Part I.

In your answers to the primary questions in Part II, respond to the following issues:

The impact on Elpida Memory shareholders.
The impact on Micron Technology shareholders.
The impact on Nanya Technology shareholders.
The financial conditions of all three corporations (do not forget to consider the new project proposed by Micron Technology in Part I).
Why might all three companies combined as one company be more profitable than they would if they remain independent? What are the success factors in these mergers?
Potential pitfalls: Might the combined entity actually be less profitable than the companies operating independently? What are the risk factors in these mergers?
In addition to making use of concepts from the background materials for this module, you may also use concepts from Modules 1-4.

3) What do you perceive you have learned in the Module 5 Case Assignment? Which of the following learning outcomes do you feel you have mastered?

Describe and apply net present value (NPV) method to make capital budgeting decisions.
Identify success factors in mergers and acquisitions.
Explain and discuss financing options for financing mergers and acquisitions.
Apply principles of risk and valuation analysis to mergers and acquisitions.

Solution Summary

Solution discusses Elpida Memory's merger with Micron Technology and Nanya Technology would add value for the shareholders of all three corporations

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