Mergers and aqcuisition - Essay Example

Since Bentley has somehow gained fame after operating with eleven stores in Southern Europe, Zeta's should look for 24-year AA bonds to determine the discount rate. Judging by the present status of Bentley in the Southern European market, the discount rate Zeta's should use to assess the value of Bentley for their equity holders should range from 5.0%-5.25%. At this low discount rate, they generally have a much shorter period concerning their liabilities. Furthermore, a discount rate of that range is competitive enough to acquire Bentley if Zeta's other competitors for Bentley acquisition uses a higher discount rate.

Zeta's also have the advantage since they have operated for years and gained patronization from retail stores in London and Newcastle. Thus, using a lower discount rate to assess the Bentley's is a safe way for their excess cash. By doing so, Zeta's is being prudent enough. If they take the bond rate, Bentley equity holders would actually overview it down for prudence. Apparently, it is quite difficult to get a good AA measure for acquisition and bond yields. Markova (2001) states that if a company uses a discount rate of such range, the competitors tend to overlook the rate and thus t discourages them to continue bidding.

Terminal value is defined as the value of any item at the end of a particular time phase. For instance, the terminal value may include the value of a fully depreciated asset and the maturity value of a bond (Bergstein, 1998). Based on the Table 1 of Mr. Sharpe, the terminal value is 8.5 million. The terminal value that should be used in order to evaluate the cash flow of Bentley is satisfactory enough for Zeta's to gain full acquisition to it, which has principally been driven by the market.

Since Bentley has somehow gained fame after operating with eleven stores in Southern Europe, Zeta's should look for 24-year AA bond. At this terminal value, they generally have a much shorter period concerning meeting the demands of their liabilities. Furthermore, a Bentley's terminal value for 2005 which is expected to grow by 5% in 2006 is competitive enough to acquire Bentley if Zeta's other competitors for Bentley acquisition uses fashion retail items using their own names. Since Zeta's is just planning to start using its own name, Zeta's have the advantage since they have operated for years and gained patronization from retail stores in London and Newcastle.

Thus, using a lower discount rate to assess the Bentley's is a safe way for their excess cash. By doing so, Zeta's is being prudent enough. If they take the bond rate, Bentley equity holders would actually overview it down for prudence. Collateral, which consists of securities that could be sold by the Reserve Bank if the borrower fails to pay back the loan, limits the Fed's (and therefore the taxpaying public's) risk exposure. Acceptable collateral includes, among other things, U.S. Treasury securities, government agency securities, municipal securities, mortgages on one- to four-family dwellings, and short-term commercial notes.

Usually, collateral is kept at the Reserve Bank,