M&a - the Summary of P4

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② Futures contract requires margins and marked-to-market daily and this could lead to uncertainty in the amount received and paid everyday.

- Standardized (Over the counter) futures contract have fixed expiry date and therefore there may be basis risk. And the pre-determined contract size means underlying asset may not be covered completely.

- There are only few commodity futures contracts are offered to cover a range of different quality grades for a commodity, therefore the price of the future may not move completely in line with the underlying asset.

- Islamic contract may have default risks of counterparty.

七、EU

①EU aims to remove barriers to trade and allow freedom of movement of production resources such as capital and labor.(compete on equal terms with rival co within EU)

②EU also has an overarching common legal structure across all member countries and tries to limit discriminatory practice against co in these countries.(apply the stds equally across all the member countries)

③EU erects common barrier to trade against countries which are not member states.(co outside the EU may find it difficult to enter the EU markets bcos of barrier to trade)

八、IRR&MIRR

IRR assumes that returns are re-invested at the internal rate of return whereas NPV and MIRR assume they are re-invested at the cost of capital. The cost of capital is more realistic assumption as it is the minimum return required by investor of a co.

The manner in which cash flow occur will have a bearing on the IRR calculated.

九、VAR

95%------------1.645 90%-------------1.282

The VAR provides an indication of potential riskiness of the project. It can be 95% confidence that the value of the project will not fall by more than xxx. Hence the project will still produce a positive NPV. However there is 5% chance that that loss in value will be greater than XXX。The potential loss of the project X is smaller therefore it is less risky. It should be noted that VAR calculations indicate that two different projects involve different risks. However the cash flows are discounted at same cost of capital which should not be bcos of different risks.

十、evaluation of projects

When both the potential risks and cash flow are taken into account, the choice between project A and B is not clear cut and depends on the Co’s attitudes to the return and risks. Project A gives higher NPV but is riskier, whereas project B is less risky but gives a smaller NPV.(主要还是看NPV) This is before taking into account non-financial risks.

十一、overseas investment

Potential problem

⑴legal risks

ⅰ.different legal regulation on --------

ⅱ.lax legal regulation in developing country, complying only with the