From the min-case study, the legal rights and stakeholder privileges are rights for income and assets sharing, control of the firm, rights to vote as well as preemptive rights. Typically, common stakeholders are the corporate owners and can decide to buy any additional shares that a firm is selling. In most states, preemptive right is enclosed in a company charter.
Free cash flow (FCF) is the amount available for distribution to all company’s investors. The money is generated from operations within the company. Typically, FCF is crucial since it enables an organization to pursue opportunities that enhance the value of shareholders. Without enough cash, it can be hard to come up with new products, pay dividends or debts, and make acquisitions. The FCF might be beneficial to individuals like equity holders, preferred stockholders, or security holders. The weighted average cost of capital (WACC) refers to the overall rate of return that is needed by all the investors in the company. WACC includes all the capital sources like preferred stock, bonds or long-term debts, and common stock. The free cash flow valuation model, on the other hand, is equal to the total of net income, depreciation and deferred tax, fewer dividends paid, and capital expenditure.
A company’s total value is the sum of all operation values together with that of non-operating assets. While some firms have a growth option that can be assumed negligible in this case, the debt holder possesses the first claim. The next claim is for preferred stockholders, and the value that remains is for common shareholders who are considered to have residual on corporate value.
Suppose the constant growth start at time T 1:
Formula, Vop, 1= FCFWACC- gL)
Suppose the constant growth start at time T 0:
Formula, Vop, 0= FCF0 (1-gL) (WACC-gL)
Expansion of business or firms to other related fields comes with significant impacts as well as issues arising from the coalition. With cases of acquisition or friendly takeovers, there are questionable ethical practices that business operators should pay close attention to. One of the major concerns has to do with the rights of workers who are directly affected by the expansion. The second primary concern is the responsibility of the shareholders during the activities of business extension. In such a situation where a business expands to other related fields like in the case study, employees are drastically affected since some job roles can shift or get eliminated. In most scenarios, employees are the last stakeholders to find out about the activity and have less contribution to decision-making processes. In situations where shareholders are fiduciary benefactors of acquisitions, then it might turn out that they have obligations attached to benefits. The utilitarian model views the ethics of business expansion from a perspective of gaining and losing actions that can improve or lower efficiency. The right approach theory, on the other hand, holds that any step taken to violate any person’s rights is unethical even if it is a decisive sum game or majority gain from the action of not supporting expansion.
Most ethical issues arising from the practice of business expansion are human resource related. For example, there is a general concern on employees’ working conditions, integration of two businesses, the effect of salaries or benefits, and withdrawals of workers from potential future growth. Parties that are involved in a business expansion process must ensure that principle of code of conduct is not overlooked in the sale transactions. The key ethical issues to address in the process include confidentiality, conflict of interest, independence, and objectivity, and requesting client records. For example, during the phase of potential business acquisition, parties tend to share classified information about clients like audit records or net worth. As such, the exchange of information, no matter how it may be crucial for stockholders, can result in a confidentiality breach.
Compatibility of business joining in operating as one is a vital part of successful expansion. A strategic way to keep ethical standards in mind during the expansion is considering the corporate cultures- worth ethics, practices, values, leadership styles, and missions. For better promotion of ethical practices, in this case, the main shareholders or organization leaders must keep in mind ethics and compliance issues like culture, which need to be addressed when they arise. To ignore ethics or compliance might jeopardize transaction success. The disparities in ethics or compliance programs have to be managed, resolved before the transaction to maximize long-term success. Another proposed strategic approach that will promote ethical rules within a healthcare organization is stakeholders should be aware that patience is vital for successful compliance integration. The management has to acknowledge that integrating two cultures is a long process, but proper resource allocation can boost success.
In conclusion, the situation presented in the case study gives an insight into ethics, and that might may occur while the business expands into related fields. As such, it is recommended to the stakeholders to keep in mind that successful expansion and integration of better ethical standards need time; hence patience is paramount.