The takeover of Manchester United football club by Glazer family of United States has been studied in details. What prompted and motivated Glazer to takeover Manchester United have also been studied. The process of financing of the takeover bid by Glazer has been mentioned in this study. Capital Budgeting Theories The future prospects of any firm or company depends on its efficient capital budgeting decisions. The competitive power of an organisation is also determined through its efficient capital budgeting decisions. Capital budgeting decision by firms relies on the fact of anticipating all the future benefits that it can earn after making an investment now. Hence capital budgeting system is applied by the companies to make an evaluation of its investment decisions in which a present outlay is involved but the benefits are likely to be earned over a longer time period in future. Capital budgeting decisions can be classified as: a. Decisions which affect revenues and are income expansionary in nature. b. Decisions which results in reduction of costs for the firm. c. Decisions which are mutually exclusive in nature. d. Capital rationing approach when finance available with the firm is limited and investment opportunities are plenty (Jain, 1999, p.5.1). The data required to formulate the capital budgeting process are a series of future cash flows of the firm after considering the taxes involved in it. These cash flows are incremental in nature and are either inflows or outflows. The capital projects of a company can either be a single proposal or a case of replacement or situation which is mutually exclusive in nature. Evaluation Techniques Various evaluation techniques can be utilised for the appraisal of an investment proposal. They are: 1. Traditional techniques a. Average Rate of Return (ARR): It is also known as Accounting Rate of Return Method and is employed to measure the average income or profit as a percentage of the average investment made in the capital project. ARR involves easier computation technique and the entire income generated during the life of the project is considered. However, this method does not take into consideration the expected cash flows of the investment proposal directly and the timing of its future cash flows (Warren, Reeve & Duchac, 2011, p.1160). b. Pay Back Period: A capital investment project involves an initial investment by the firm and the future cash inflows it gets. Payback period is calculated as the time period within which the initial invested amount is recovered from the cash inflows generated from the project. This method is easier to calculate and simpler to understand. Cash flow analysis is also done in this case. However, the cash flows that are generated post payback period are not taken into account in this method and the concept of present value of different future cash flows are also not utilised (Duchac, Warren & Reeve, 2011, p.1166-1167). 2. Discounted Cash Flow (DCF) techniques a. Net Present Value (NPV): The difference of the summation of the present values of cash inflows of the capital investment project and the present value of all the cash outflows involved in the project gives the NPV of the project. It gives a measure of the
CAPITAL BUDGETING: GLAZERS TAKEOVER MANCHESTER UNITED Table of Contents Table of Contents 2 Introduction 3 Capital Budgeting Theories 3 Evaluation Techniques 4 1.Traditional techniques 4 2.Discounted Cash Flow (DCF) techniques 5 Corporate Valuation and Takeover 6 Takeover Bid of Manchester United – Background 7 Glazers’ Motivation 8 Conclusion 12 References 14 Introduction Capital budgeting decisions plays a pivotal role in the efficient running of a business organisation…
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