Globalization and International Business Essay

Globalization and International Business The Concept of Globalization – putting everything into one village * The process of integration and convergence of economic, financial, cultural and political systems across the world. * Globalization – refers to the integration and interaction between different people and nations. * Globalization is the process of international integration arising from the interchange of world views, products, ideas and other aspects of culture. Globalization – A holistic approach 1. Economic Globalization: the increasing integration of national economic systems through the growth in international trade, investments and capital flow. 2. Financial Globalization: the liberalization of capital movements and deregulations, especially of financial services that led to a sport in cross boarder capital flows. 3. Cultural Globalization: convergence of cultures across the world E.g. Dress codes, ways of living. 4. Political Globalization: the convergence of political systems and processes around the world. Dimensions of Economic Globalization {what has changed} * Globalization of production – the increased mobility of the factors of production especially the movement of capital that has changed countries’ traditional specialization roles. (process is made shorter and cheaper) * Globalization of Markers – technological strides in communication, transport and travel have created new consumer segments. The global markets have become easily accessible. (producing standardized products that are advanced, functional reliable and low priced). * Globalization of competition – it has intensified in such a way that businesses are forced to form mergers or enter into new strategic alliances, competing with new players around the globe. * Globalization of technology – it has advanced rapidly and thus creating shorter cycles for production of goods and services. The running of businesses becomes more effective and efficient. In some cases though, several businesses might have difficulty keeping up with the advancements due to financial constraints. * Globalization of corporations and Industries: – Economic liberalization has led to economic growth in Foreign Direct Investments and relocation of business enterprises as a result, there has been fragmentation in business processes. Where different stages of production are coming out in different countries E.g. Toyota manufactures in Japan and assembles in South Africa. Factors influencing Globalization (Movers) * Economic Liberalization * Technological Breakthrough * Multilateral Institutions * International Economic Integrations * Move towards free marketing systems * Rising research and development costs * Global expansion of business operations * Adverts in logistics management * Emergence of the global customer segment Factors restraining Globalization * Regulatory controls * Emerging trade barriers * Cultural factors * Nationalism * War and civil disturbances * Management myopia – thinking within the box/boarders Quiz: what is meant by internationalization of a firm’s value chain? Reasons for support of Globalization * Maximization of economic efficiencies (learning to use economic resources of a country to the fullest potential) * Enhancing trade * Increase cross-boarder capital movement * Improves efficiency of local firms * Increases consumer welfare Criticism of globalization * Developed Vs Developing countries: unequal players in globalization * Widening gap between the rich and poor * Wipes out domestic industry * Leads to massive layoffs and unemployment * Brings in problems related to balance of payments * Increased volatility of markets * Diminishing power of nation states * Loss of cultural identity * Shift of power to multinationals Response Strategies to Globalization forces for emerging market companies: Defender Extender Dodger Contender 1. Defender Strategy – When pressure to globalize is low, local companies adopt the defense strategy that focuses on leveraging local assets in the market segments where multinationals are weak. 2. Extender strategy – when companies’ posses competitive skills and assets that can be transferred abroad, companies can focus on expanding to markets similar to home base using competencies developed at home. 3. Dodger strategy – when pressure to globalize is high, local companies have no option but to dodge competition by cooperating through a joint venture or becoming a supplier or service provider selling off to multinational enterprises e.g. Skoda Czech car maker sold to Volkswagen. 4. Contender strategy – companies that have high pressure to globalize and competitive advantages that can be leveraged overseas can aggressively compete by focusing on upgrading their capabilities in the niche segment to match multinationals globally ie. TATA India Concepts of International Business 1. International Trade – exports of goods and services to a foreign-based buyer (importer) 2. International Marketing – refers to marketing carried out by firms/companies across the national boarder line. 3. International Investment – cross boarder transfer of resources to carry out business activities. 4. International Management – application of management concepts and techniques in a cross country environment an adaptation to different social-cultural, economic, legal, political and technological environments. 5. International Business – all those business activities which involve cross-border transactions of goods and services and resources between two or more nations. 6. Global business – conduct of business activities in several countries using a highly co-ordinate and single strategy across the world. Types of International Business Transactions * Transactions – exchange of values between buyer and seller typically involving intermediaries and currency as medium of exchange. * Exchange of: production inputs, components partially/nearly finished products, goods/services, ideas/know how. Boarders: their significance * State boundaries – denote sovereignty, citizenship (political authority), legal jurisdiction, security. When there’s no boarder, there’s no state!! * National cultures, National Identity * Economic Unit – eroded due to globalization, economic transactions are mainly domestic. * Boundaries – of mind and habit, boundaries are psychological not just physical. How boarders make a difference: As soon as you have different cultures, different contact forms, different legal structures, different taxation environments, the complexity introduced by that is immense. The reason why businesses that expand overseas fail is: they underestimate the complexity that’s enlarged in an international organization. The Internationalization of Business: * Bringing in new ideas * Moving across the boarders * Companies conduct value adding actitvities on a global scale, primarily to organize, source, manufacture and market. * A Level play field – international activities appealing to all types of firms; large or small. Manufacturing and services sectors E.g. Banking, Transportation, Design, Advertising and retailing. Nature of International Business * Value adding activities * Firms internationalize via experts, foreign direct investment, licensing, and collaborative ventures. * Foreign portfolio investment – less than 10% * Foreign Direct Investment – More than 10% Reasons for International Business Expansion 1. Market seeking motives * Marketing opportunities due to lifestyle cycles * Uniqueness of products or services 2. Economic motives * Economies of scale are achieved * Profitability * Spreading research and development costs 3. Strategic motives * Growth * Risk spread Differences between Domestic and International Business * Economic environment * Social * Infrastructure * Legal * Political * Competition * Technology The Four risks of International Business 1. Cross- cultural risk – occurs when a cultural misunderstanding puts some human value at stake. * Cultural differences * Negotiation patterns * Decision making styles * Ethical practices 2. Commercial risk – refers to a firm’s potential loss or failure from poorly developed or executed business tactics. * Weak partners * Operational problems * Timing of entry * Competitive intensity * Poor execution of strategy 3. Currency risk (financial risk) – the risk of adverse fluctuations in exchange rates * Currency exposure * Asset evaluation * Foreign taxation * Inflation and transfer 4. Country risk (political risk) – refers to the potentially adverse effects on company operations and profitability caused by developments in political, legal and economic environments in a foreign country. Risks: will always be present but can be managed: Managers is such situations should: * Anticipate the risks * Understand the implications thereof * Take pro-active action * Reduce adverse effects Some risks are extremely challenging e.g. the East Asian Economic Crisis in 1998. It generated substantial commercial, currency and country risks. Participants in International Business: 1. Multinationals E.g. Kodak, Nokia, Samsung, Multinational Enterprises own worldwide network of subsidiaries. 2. Other participants * Small and medium sized enterprises; In the USA a small/medium enterprise sized entity is described as that having 500 or fewer employees. * Comprises of 90-95% of all firms in most countries . * Increasingly more SME’s participate in International Business. Why do firms Internationalize? * Seek growth opportunities through market diversification * To earn higher margin profits * Gain new ideas about products, services * Better service to customers that have relocated abroad * Be closer to supply sources * Benefit from global sourcing advantages * Gain flexibility in sourcing products * Gain access to better value factors of production * Develop economies of scale in sourcing, production, marketing and R&D * Confront international competitors more effectively or thwart the growth of competition in the home market. * Invest in a potentially rewarding business venture. What caused the East Asian Economic Crisis Theories of Trade Absolute Advantage: when a country is efficient in producing a commodity than any other country. Countries should therefore specialize in producing a product of which they are efficient in producing and then trade such product for goods produced by other countries. Output per hour of labour – using the same resources | Cloth| Wheat| Country A| 100| 200| Country B| 250| 160| Total| | | Interpretation: clearly The Political Economy of International Trade The political reality of International Trade is that while many nations are nominally committed to free trade, they tend to intervene in international trade to protect the interest of politically important groups. Instruments of trade policy are tariffs, subsidies, import quota, voluntary export restraints, local content requirements, administrative policies and anti-dumping duties. * A tariff is a tax levied on imports that effectively raises the cost of imported products relative to domestic products. * Specific tariffs are levied as a fixed charge for each unit of a good imported. * Ad valorem tariffs are levied as a proportion of the value of the imported good. * A subsidy is a government payment to a domestic producer. Subsidies may take form of a tax break, cash grants, low-interest loan. * Subsidies help domestic firms by lowering production costs * Help them compete against foreign imports * Gain export markets * Government pay for subsidies by taxing individuals(consumers) * Import Quota – is a direct restriction on the quantity of some good that may be imported into a country. * Voluntary export restraints – are quotas on trade imposed by the exporting country, typically at the request of the importing country’s government. * A local content requirement demands that some specific fraction of a good be produced domestically. * The requirement can be in physical or value terms. * Local content requirements benefit domestic producers and jobs, but consumers face higher prices. * Administrative policies are informed bureaucratic rules designed to make it difficult for imports to enter a country. For example Japanese customs inspectors insist on opening a large proportion of express packages to check for pornographic materials. * This process that can delay express packages has made it difficult for FedEx to expand its global shipping services to Japan. * These policies hurt consumers by denying access to possibly superior foreign products. * Dumping is selling goods in foreign markets below their cost of production/fair market value. * Anti-dumping policies are designed to punish foreign firms that engage in dumping. Dumping is viewed as a method by which firms unload excess production in foreign markets sometimes at prices below the cost of production. * The goal is to protect domestic producers from unfair foreign competition. * US firms that believe a foreign firm is dumping can file a complaint with the government. * If the complaint has merit, antidumping duties, also known as countervailing duties may be imposed. Why Governments intervene? Basically there are three reasons: Political, Economic and Cultural 1. Political reasons include: * Protecting jobs and industries from foreign competition, trade controls usually result in higher price for consumers. * National Security – defense related industries often get this kind of protection. * Retaliations are threats used as bargaining tasks to help open foreign markets and force trading partners to play by the rules. It is usually in retaliation to a trading partner’s trade policy. Protect consumers from unsafe products. 2. Economic Reasons: * The infant industry argument(protecting them) * Strategic trade policy – policies that government enact to ensure that firs-mover advantages are reserved for local firms in industries where substantial economies of scale exist. 3. Cultural Motives – unwanted influence causes great distress and can force governments to block imports. Many countries have laws that protect their media programming for cultural reasons – for example in Canada about 35% of music played on TV and radio must be of Canadian origin. Economic Integration The abolition of trade restraints between nations. It is the growing economic interdependence that results when countries within a geographic region form an alliance aimed at reducing barriers to trade and investment. * Three Levels of Economic Integration * Global: trade liberalization by GATT or WTO * Regional: preferential treatment of member countries in the group ie. SACU, SADC, COMESA ,etc. * Bilateral: preferential treatment between two countries * Regional and Bilateral agreements are against the MFN clause (normal trading relations), but allowed under WTO. * Visit www.wto.org for regional trade agreements. Regional Economic Integration * Growing economic interdependence that results when countries within a geographic region form an alliance aimed at reducing barriers of trade and investment. About 40% of the world trade now occurs via economic bloc agreement. Cooperating nations obtain: * Increased product choices, productivity, living standards * Lower prices and * More efficient resource use. Economic Bloc A geographical area that consists of two or more countries that agree to pursue economic integration by reducing tariffs and other restrictions to cross-border flow of products, services, capital and in more advanced stages, labor. Examples: EU, NAFTA, MERCOSUR, APEC, ASEAN and many others. There are five possible levels of economic integration * Customs Union * Common Market * Economic Union * Political Union 1. Free Trade Area – countries agree to reduce tariffs but not eliminate everything The simplest most common arrangement, member countries agree to gradually eliminate formal trade barriers within the bloc, while each member country maintains an independent international trade policy with countries outside the bloc. Eg. NAFTA 2. Customs Union – similar to a free trade area except that the members harmonize their trade policies toward non-member countries, by enacting common tariff and non-tariff barriers on imports from non-member countries. E.g. SACU(Lesotho, Swaziland, Namibia, SA). Members have a revenue pool and it is shared according to how much each has contributed. 3. Common Market (single market)- like a custom union except products, services and factors of production such as capital, labor, and technology can move freely among the member countries. E.g. COMESA – requires much cooperation among the member countries on labor and economic policies. 4. Economic Union – like a common market, but members also aim for common fiscal and monetary policies, standard commercial regulations, social policy, etc. E.g. the EU is moving toward economic union by forming a monetary union with a single currency the EURO. 5. Political Union – perfect unification of all policies by a common organization. Submersion of all separate national institutions e.g. former USSR * Remains ideal, but yet to be achieved. The European Union What is the European Union? * Shared values: liberty, democracy, respect, for human rights and fundamental freedom, and the rule of law. European Coal and Steel Community * In the aftermath of the World War II, the aim was to secure peace among Europe’s victorious nations an bring them together as equals, cooperating within shared institutions. * Based on a plan by French foreign minister Robert Schuman. * Six founding states/countries: Belgium, the Federal Republic of Germany, France, Italy, Luxembourg and the Netherlands – signed a treaty. History of the EU * Treaty of Paris (1951) Formation of ECSC Treaty of Rome (1957) Formation of ECC (European Economic Community) -initially free trade area, becoming a customs union in 1967. * The Stockholm convention in 1960 created EFTA by seven countries to counteract ECC. * Single European Act of 1993 * Creation of single market (common Market) effective on January 1 1993 * Rename EEC by EU (15 members) * Treaty of Maastricht (1992) * Creation of an economic union, EMU * Establishment of European Central Bank on July 1998 * Introduction of a common currency, Euro on 1 January 1999 * Circulation of Euro on 1 January 2002. The EU features: A full-fledged Economic Union 1. Market access: tariffs and most non-tariff barriers have been eliminated. 2. Common market: removed barriers to cross national movement of production factors i.e labor, capital and technology. 3. Trade rules: eliminated customs procedures and regulations, streamlining transportation and logistics within Europe. 4. Standards harmonization: harmonizing technical standards, regulations, and enforcement procedures on products, services and commercial activities. 5. Common fiscal, monetary, taxation and social The European Union Today * 27 members * New members e.g. Poland, Hungary, Czech Republic are low-cost manufacturing sites. * Peugeot, Citroen(france) – factories in Czech Republic. * Hyundai (South Korea) – Kia plant in Slovakia. * Suzuki (Japan) – factory in Hungary. * Most new EU entrants are one-time satellites of the Soviet Union, and have economic growth rates for higher than the 15 Western European counterparts. * Developing economies e.g Romania, Bulgaria, may take decades of foreign aid to catch up. Four Institutions that govern the EU 1. Council of the European Union – the main decision-making body. Makes decisions on economic policy, budgets, and foreign policy and admission of new member countries. 2. European Commission – represents the interest of the EU as a whole. Proposes legislation and is responsible for implementing decisions of the Parliament and the council. 3. European Parliament – up to 732 representatives, hold joint sessions each month. Three main functions are: * Devise EU legislation * Supervise EU Institutions * Make decisions on the EU budget. NAFTA (Canada, Mexico, USA) NAFTA passage (1994) was facilitated by the maquilladora program, in which US firms allocated manufacturing plants just South of the USA border to access low-cost labor without significant tariffs. NAFTA has: * Eliminated tariffs and most non-tariff barriers for products and services. * Established trade rules and uniform customs procedures. * Instituted investment rules and intellectual property rights. * Provided for dispute settlements for investment, unfair pricing, labor issues, and the environment. NAFTA Results: * Trade among the members more than tripled, and now exceeds 1 trillion per year. * In the early 1990’s Mexico’s tariffs averaged 100% and gradually. How the Mexican Economy benefited from NAFTA * Mexico exports to the US grew from 50 billion to over 100 billion per year. * Access Canada and the US helped launch many Mexican firms in industries such as electronics, cars, textiles, medical products, and services. * Yearly US and Canadian investment in Mexico rose from 4 billion in 1993 to nearly 20 billion by 2006. * Mexico’s per capita income rose to about 11 000 in 2007, making it the richest country in Latin America. * Why nations pursue economic integration 1. Expand market size * Greatly increases the scale of the market place for firms inside the economic bloc. Eg. Belgium has a population of just 10 million; the EU has a population of nearly 500 mil. * Consumers can access much bigger selection of products and services. 2. Achieve economies of scale and enhance productivity * Bigger market facilitates economic scale * Internationalization inside the bloc helps firms learn to compete more effectively outside the bloc. * Labor and other inputs allocated more efficiently among the member countries, leading to lower consumer prices. 3. Attract investment from outside the bloc * Compared to investing in stand-alone countries, foreign firms prefer to invest in countries that are part of an economic integration bloc. E.g General Mills, Samsung, TATA invested heavily in the EU. 4. Acquire stronger defensive and political posture * Provide member countries with a stronger defensive posture relative to other nations and world regions, an original motive of the EU. Factors contributing to the success of Regional Integration 1. Economic Stability – the more similar the economies of the member states, the more likely the bloc will succeed. Eg. Wage rates, economic stability e.g. SADC, EU 2. Political Stability – similarity in political systems is key. Countries should share similar aspirations and a willingness to surrender national autonomy e.g EU 3. Similarity of culture and language – Helpful but not absolutely necessary. 4. Geographic proximity – facilitates transportation of products, labor, and other factors. Neighboring countries tent to share a common history, culture and language E.g. NAFTA, EU Consequences of Regional Integration * Trade Creation – as barriers fall, trade is generated inside the bloc. * Trade Diversion – as within the bloc trade becomes more attractive, member countries discontinue some trade with non-member countries. * Aggregate effect – National patterns of trade are altered. More trade occurs inside the bloc. * A concern: a bloc might become an economic fortress leading to more within-bloc trade and less between bloc trade: can harm global free trade. * Loss of National Identity – increased cross-boarder contact makes members more similar to each other E.g. in response Canada has restricted the ability of US movie and TV producers to invest in the Canadian film and broadcasting industries. * Sacrifice of Autonomy – in later stages of regional integration a central authority is  set up to manage the bloc’s affairs. Members must sacrifice some autonomy to the central authority, such as control over their own economy. E.g Britain in the EU. * Transfer of power to advantaged firms – can concentrate economic power in the hands of fewer larger firms, often in the most advantaged member countries. * Failure of small or weak firms – as trade and investment barriers fall, protection is eliminated that previously shielded smaller or weaker firms from foreign competitions. * Corporate restructuring and job loss – Increased competitive pressures and corporate restructuring may lead to worker layoffs or re-assigning employees to distant locations, disrupting worker’s lives and entire communities. * Internationalization by firms inside the bloc – internationalization gets easier after regional integration. * Rationalization of operations – managers develops strategies and value-chain activities suited to the region as whole, not individual countries, by restructuring and consolidation company operations. The goal is to reduce costs and redundancy, increase centralized distribution, instead of decentralization to individual countries. * Mergers and acquisitions – Economic blocs lead to mergers and acquisitions, the tendering of one firm to buy another, or of two or more firms to merge and form acquisitions. Cross – Cultural risk * A situation or event where a cultural mis-communication puts some human value at stake. * Arises when we enter environments characterized by unfamiliar languages and unique value systems, beliefs, attitudes and behaviors. * One of the four major risks in international business. Manifestations of Cross-Cultural risk * Ethnocentric orientation – using our own culture as the standard for judging other cultures. * Polycentric orientation – a mindset in which the manager develops a greater affinity with the country in which he/she does business than the home country. * Geocentric orientation: a global mindset in which the manager is able to understand a business or market without regard to national boundaries. * Managers should strive for a  geocentric orientation. Definitions of Culture: * Incorporates both objective and subjective elements. * Objective aspects of culture include tools, roads, television programming, architecture and other physical artifacts. * Subjective aspects include norms and values, ideas, customs and other meaningful symbols. * Hofstede, a well-known Dutch organizational anthropologist views culture as a collective mental programming of people and the software of the mind; how we think and how we reason. Culture Is: * Not right or wrong – it is relative. There is no cultural absolute, different nationalities simply perceive the world differently. * Not about individual behavior – culture is about groups. It refers to a collective phenomenon of shared values and meaning. * Not inherited – culture is derived from the social environment. We are not born with a shared set of values and attitudes, we learn and acquire as we grow up. Culture is learned: * Socialization – the process of learning the rules and behavioral patterns appropriate to ones given society. Eg. Cultural learning * Acculturation – the process of adjusting and adapting to a culture other than one’s own. Commonly experienced by expatriate workers. * Culture is like an ice-berg-above the surface. Certain characteristics are visible, below the surface is massive base of assumptions, attitudes and values that strongly influence decision making relationships, conflict and other dimensions of business. Cross-cultural proficiency is paramount in Managerial tasks. Examples: * Developing products and services * Communicating and interacting with foreign business partners * Negotiating and structuring international business ventures * Interacting with current and potential customers * Preparing advertising and promotional materials. Cross cultural differences may create challenges: * Teamwork – what should managers do if foreign and domestic nationals don’t get along? * Lifetime employment – workers in Japan often expect to work for the same firm throughout their careers; How should foreign firms handle that? * Pay for performance system – In China and Japan, a person’s age is important in promoting workers. Yet how do such workers perform when merit performance-based measures are used? * Organizational Structure – preferences for centralized, bureaucratic structures may deter information sharing. * Union-management relationships – workers in European firms enjoy a more equal status with managers. * Attitudes towards ambiguity – if you’re uncomfortable working with minimum guidance or taking independent action, you may have difficulty fitting into some cultures. Three approaches to interpreting culture: * Metaphors – refer to a distinctive tradition or institution strongly associated with a society – a guide to deciphering attitudes, values and behaviors. * Stereotypes – are generalizations about a group of people that may or may not be factual, often over looking real, deeper differences. * An Idiom – is an expression whose symbolic meaning is different from its literal meaning. The Nature of Stereotypes * Are often erroneous and lead to unjustified conclusions about others. * Still most people employ stereotypes, either consciously or unconsciously, because they are an easy means to judge situations and people. * There are real differences among groups and societies, we should examine descriptive behaviors rather than evaluate stereotypes. * An example: some Latin Americans procrastinate via the manana syndrome. E.T. Hall’s High and Low context cultures: Low Context * Rely on elaborate verbal explanations putting much emphasis on spoken words. * Tend to be in northern Europe and North America which place central importance on the efficient delivery of messages. * Communication is direct and explicit – don’t beat around the bush. High Context * Establish trust first * Personal relations and goodwill are valued * Agreements emphasize trust * Negotiations slow and ritualistic * Emphasis is on non-verbal messages and use communication as a means to promote smooth harmonious relationships. * Prefer an indirect, polite, face-saving style that emphasizes a mutual sense of care and respect for others, careful not to embarrass or offend others. * It is difficult for Japanese people to say No when expressing disagreement. Much more likely to say it is different – an ambiguous response. * In East Asian cultures, showing impatience, frustration, irritation, or anger disrupts harmony and is considered rude and offensive. * To succeed in Asian cultures, it is critical to notice non verbal signs and body language. Hofstede’s Classification of National culture 1. Individualism Versus Collectivism – refers to whether a person primarily functions as an individual or within a group. 2. Power Distance – describes how a society deals with inequalities in power that exists among people. 3. Uncertainty avoidance – refers to the extent to which people can tolerate risk and uncertainty in their lives. 4. Masculinity Vs Femininity 1.1 Individualistic Society – ties among people are relatively loose,  each person tends to focus on his/her own self interests. E.g Australia, Canada and the UK 1.2 Collectivist Societies – ties among individuals are more important than individualism: business is conducted in the context of groups where everyone’s norms are strongly considered. E.g China, Panama, and South Korea. 2.1 High Power distance societies – have substantial gaps between the powerful and the weak: are relatively indifferent to inequalities and allow them to grow. E.g. Guatemala, Malaysia, the Philippines. 2.2 Low-power distance socities – have minimal gaps between the powerful and weak. E.g. Denmark and Sweden governments instituted tax and social welfare systems that ensure their nationals are relatively equal in terms of income and power. * Social stratification affects power distance. In Japan almost everybody belongs to the middle class, while in India the upper stratum controls decision making and buying power. * In high distance firms, autocratic management styles focus power at the top 3.1 High Uncertainty avoidance societies create institutions that minimize risk and ensure financial security, companies emphasize stable careers and produce many rules to regulate worker actions and minimize ambiguity. 3.2 Low-uncertainty avoidances societies – socialize their members to accept and become accustomed to uncertainty: managers are entrepreneurial and comfortable with risk taking, decisions are made quickly, people accept each day as it comes. 5.1 Masculine cultures – value competitiveness, assertiveness, ambitions and the accumulation of wealth. Both men and women are assertive, focused on career and earning money, and may care little for others. E.g Australia and Japan. The US is a moderately masculine society, as are Hispanic cultures that display a zest for action, daring and competitiveness. In business, the masculinity dimension manifests as self-confidence, pro activeness and leadership. 5.2 Feminine cultures emphasize nurturing roles, interdependence among people, and caring for less fortunate people – for both men and women. e.g. Scandinavian countries welfare systems are highly developed and education is subsidized. Subjective Dimensions of culture Subjective dimensions – values and attitudes, manners and customs, deal versus relationship orientation, perceptions of time, perceptions of space and religion. * Values represent a person’s judgment about what is good or bad, acceptable or unacceptable, important or unimportant and normal or abnormal. * Attitudes and preferences are developed based on values, and are similar to opinions, except that attitudes are often unconsciously held and may not have a rational basis. * Prejudices are rigidly held attitudes, usually unfavorable and aimed at particular groups of people. Examples: values in North America, Northern Europe, and Japan – hard work, punctuality and the acquisition of wealth. Deal Vs Relationship Culture * Deal Oriented cultures- managers focus on the task at hand are impersonal, typically uses contacts and want to just get down to business. Example, Australia, North Europe, and North America. * Relationship Oriented cultures- managers have affiliations with people, rapport and get to know the other party in business interactions, relationships are more important than the deal – trust is highly valued in business, agreements. Example, China, Japan, Latin America etc. It took nine years for Volkswagen to negotiate an automobile factory in China. Manners and Customs * Manners and Customs are ways of behaving and conducting oneself in public and business situations. * Informal cultures – egalitarian in which people are equal and work together cooperatively * Formal cultures – status, hierarchy, power and respect are very important. * Varying Customs: eating habits, mealtimes, work hours and holidays, drinking, appropriate behavior at social gatherings (handshaking, bowing and kissing), gift-giving (complex), roles of women. Religion * A system of common beliefs or attitudes concerning a being or system of thought people consider to be scared, divine, or highest truth as well as the morals codes, values, traditions, and rituals associated with this system. * Influences culture, and therefore business and consumer behavior. * Example: The protestant work ethic emphasizes hard work, individual achievement and sense that people can control their environment – the underpinnings for development of capitalism Language as a key dimension of culture * The mirror or expression of culture, essential for communication; provides insight into culture. * Linguistic proficiency is a great asset in International Business. * Language has verbal and non verbal (unspoken, facial expressions and gestures) * There are nearly 7000 active languages including 2000 in Africa. Technology, the Internet and Culture * Technological advances are a key determinant of culture and cultural change – more leisure time, and computers, multimedia, and communications systems that encourage convergence in global culture. * The â€Å"death of distance refers to the demise of the boundaries that once separated people, due to modern communications, information, and transportation technologies – more homogenized cultures are developed. * The internet also promotes the diffusion of culture, with rapidly growing numbers of internet users. Are cultures converging? The concept of Sovereignty Sovereignty – meaning Self Rule is when a state or government is able to make and enforce laws within its boundaries without interference from foreign nations. It is also connected to the ability of a country to guarantee the best interest of its own citizens. How does Globalization affect sovereignty? Discuss the effect of Globalization on National culture: 1. Stripped us of our culture since people become more attached to western culture and neglect their ways of doing things. Critically evaluate various dimensions of Economic globalization and their impacts on business enterprises: explain how it is affected and give examples. 1. Globalization of Production: increased mobility of the factors of production has changed traditional specialization roles 2. Globalization of Competition: competition with international businesses has intensified and therefore cost reduction is encouraged to improve efficiency. 3. Globalization of markets: markets have become easily accessible, allowing for expansion and growth. Goods are made of a standard level since customers worldwide have the same tastes and preferences. 4. Globalization of Technology: it has advanced rapidly leading to shorter production cycles. It also makes managing a business more effective and efficient. Advancements in technology have also become difficult to maintain due to financial constraints for some businesses. 5. Globalization of Industries: they have the options of putting up shops anywhere in the global village, giving customers a variety of choices in terms of goods and services. Convergence – bringing together two or more things Globalization – putting everything into one village.

Lbo Model

Leveraged Buyout Model (LBO) Copyright 2009 Investment Banking Institute www. ibtraining. com Table of Contents I. Uses for An LBO Model on Sell-side and Buy-side Construction of LBO Model Structure and Assumptions Worksheet Purchase price calculation and considerations Sources and Uses II. Capital Structure Alternatives Integration of Proforma Balance Sheet into Financial Model Income Statement, Balance Sheet and Cash Flow Projections Integration III. IRR Analysis for Financial Sponsor and Hybrid Debt Lender IV. Sensitivity Tables V. Credit Ratios 2 Uses for an LBO Model on the Buy-SideA Leveraged Buyout Model (â€Å"LBO Model†) is a key analysis used by private equity firms / financial sponsors to evaluate a potential acquisition The goal of an LBO is to acquire a company by financing the purchase with as much debt as the cash flows of the business and the debt markets will support The more debt a financial sponsor is able to obtain to finance an acquisition, the less of an equity investment the financial sponsor has to make The higher the leverage levels, the higher the expected Internal Rate of Return (â€Å"IRR†) is for the financial sponsor / private equity firm The goal of an LBO model is to establish expected internal rates of return (â€Å"IRR†) for the acquisition using a financial model that reflects the following: Purchase price assumptions and the necessary cash needed to finance the acquisition (uses of cash) Capitalization assumptions: leverage (amount of debt), different debt tranches, equity investment amounts (sources of cash) Base case financial projections for the income statement, balance sheet and cash flow based upon the purchase price and capitalization assumptions The LBO model should be built with the ability to run sensitivities for a range of purchase prices, capitalization structures, operating assumptions, etc. 3 Uses for an LBO Model on the Buy-Side Private Equity Firms / Financial Sponsors usually have a requ ired rate of return hurdle f the expected IRR range for a potential acquisition does not meet or exceed the hurdle rate, often the PE firm / financial sponsor does not move forward with the acquisition PE firms required rates of return usually range from 15% on the low-side to 30% on the high-side, with the typical range targeted at 18% – 25% The IRR analysis is strongly driven by the amount of leverage With higher leverage levels, the financial sponsor has to invest less equity, and therefore has a higher IRR Therefore, often the goal is to leverage up the Company as much as the cash flow of the business and the debt markets will permit More leverage makes the business inherently riskier, as more of the cash flows generated by the business will be used to pay interest expense and debt serviceThe amount of leverage is largely determined by the state of the debt markets 4 Uses for an LBO Model on the Buy-Side The amount of leverage is largely determined by the state of the deb t markets For the last several years, the debt markets have been experiencing excess liquidity Because of the excess liquidity, lenders have been allowing higher leverage levels Depending on the industry and business, transactions over the last several years have been leveraged at between 4. 0x – 6. 0x recent EBITDA These higher leverage levels allow the financial sponsor to pay more for the company and still attain its required IRR The leverage level of 4. 0x – 6. x recent EBITDA is comprised of some combination of senior secured loans and junior loans (second lien, third lien, unsecured loan, hybrid debt / equity securities) Lenders may require the financial sponsor to have a minimum equity investment as % of total capitalization Minimum equity contribution is typically around 20% – 25%, depending on industry and purchase price 5 Uses for an LBO Model on the Buy-Side The LBO Model is also used for the Lenders’ perspectives Lenders like to see expected l everage and coverage ratios based upon the Company’s projected income statement, balance sheet, cash flow, and capitalization Typical ratios that lenders like to see are: Leverage RatiosTotal Debt / EBITDA Net Debt / EBITDA Secured Debt / EBITDA EBITDA / Net Interest Expense EBITDA / Cash Interest Expense Interest Coverage Statistics EBITDA / Net Interest Expense EBITDA / Cash Interest EBITDA – Capex / Net Interest Expense EBITDA – Capex / Cash Interest Expense EBITDA – Capex – ? W/C / Net Interest Expense EBITDA – Capex – ? W/C / Cash Interest Expense EBITDA – Capex – ? W/C – Taxes/ Net Interest Expense EBITDA – Capex – ? W/C – Taxes/ Cash Interest Expense 6 Uses for an LBO Model on the Sell-Side Investment Bankers often construct LBO models to: Provide this service to a financial sponsor client that is interested in pursuing an acquisitionProvide this service to a Company client where the co mpany is being sold – Illustrates the range of purchase prices financial buyers could pay and still attain their required IRR – Uses the current debt markets conditions as assumptions for the capitalization As a â€Å"gut-check† for other valuation methodologies (DCF, Public comparable company multiples, acquisition multiples) 7 Table of Contents I. Uses for An LBO Model on Sell-side and Buy-side Construction of LBO Model Structure and Assumptions Worksheet Purchase price calculation and considerations Sources and Uses II. Capital Structure Alternatives Integration of Proforma Balance Sheet into Financial ModelIncome Statement, Balance Sheet and Cash Flow Projections Integration III. IRR Analysis for Financial Sponsor and Hybrid Debt Lender IV. Sensitivity Tables V. Credit Ratios 8 Construction of LBO Model Structure and Assumptions Worksheet Build upon the Financial Model template, and modify accordingly Add a worksheet for the LBO Model Structure and Assumptio ns The LBO Assumptions tab will have drivers for Purchase price assumptions Uses: Cash required to acquire the company and pay associated fees Sources: Cash available to acquire the company (debt, equity) USES = SOURCES Capitalization assumptions IRR Analyses 9 Purchase Price Calculation and ConsiderationsThe determination of the purchase price is complicated and typically involves a full-scale valuation (DCF, public company multiples and transaction multiples) as well as extensive due diligence on Company’s operations, financial condition, management team, customers, suppliers, assets, etc. If the Company has publicly traded equity, then typically a purchase price would be calculated much as TEV is calculated: (Offer price per share * fully diluted shares) + debt + minority interest + preferred interest – cash For the purposes of this model, we are assuming the LBO of a private company, and therefore using the most recent 12 month EBITDA and EBITDA multiple as the dri vers of purchase price Purchase price = EBITDA * EBITDA multiple We are assuming the transaction closes on December 31, 2008 LBO of Company A ($ in millions) TRANSACTION ASSUMPTIONS Closing Date 31-Dec-08 2008 EBITDA $60. 0 EBITDA Multiple 6. 0xTransaction (Enterprise) Value $360. 0 Less: Existing Debt ($190. 8) Plus: Cash $0. 0 Implied Equity Purchase Price $169. 2 10 Sources and Uses Total Uses is the amount of cash necessary to complete the transaction Usually equals the purchase price plus transaction fees and any other cash payment required as part of the transaction – For the LBO of a publicly traded company, purchase price is calculated as (offer price per share * shares outstanding ) + debt + minority interest + preferred equity – cash, and cash on target’s balance sheet is used as a source Other required cash payments could be payments to certain parties that kick-in with a change of control (e. g. anagement payments, premiums to outstanding notes, etc. ) Total Sources illustrates the sources of capital to complete the transaction Usually equals debt + equity + any other cash available Total Uses = Total Sources LBO of Company A ($ in millions) TRANSACTION ASSUMPTIONS Closing Date 31-Dec-08 2008 EBITDA $60. 0 EBITDA Multiple 6. 0x Transaction (Enterprise) Value $360. 0 Less: Existing Debt ($190. 8) Plus: Cash $0. 0 Implied Equity Purchase Price $169. 2 TOTAL USES Uses Equity Purchase Price Paydown Existing Debt Financing Fees Investment Banking Fees Legal Fees Other Fees and Expenses $169. 2 $190. 8 8. 0 4. 0 1. 0 1. 0 Total Uses $374. 0 TOTAL SOURCES Amount EBITDA of Funded Multiple Capitalization $0. 0 0. 0x 0. 0% 0. 0 0. 0x 0. 0% 120. 0 2. 0x 32. 1% 90. 0 1. 5x 24. 1% 60. 0 1. 0x 16. 0% 270. 0 4. 5x 72. 2% 104. 0 27. 8% $374. 0 100. 0% Capitalization Cash Revolver Term Loan Senior Bonds Unsecured Notes with Warrants Total Debt Sponsor Equity Total Sources 11 Interest Rate Cash Pay PIK 7. 0% 7. 5% 9. 5% 0. 0% 0. 0% 0. 0% 0. 0% 1 0. 0% % of Fully Diluted Equity na na na 5. 0% Capital Structure Alternatives The Total Sources Side is comprised of the capitalization assumptions The financial sponsor typically wants to leverage the transaction as much as the business’s cash flow and the lenders will allowDepending on the conditions of the debt markets and lenders’ requirements, financial sponsors would typically provide approximately 20% – 30% of the capitalization as an equity investment The debt is comprised of different securities usually provided by different lenders Revolver / Term loan (senior secured loans) are usually provided by typical commercial banks such as Citigroup, JPMorganChase, GE Commercial Finance, etc. , and have lower interest rates Junior loans such as second and third lien pieces and unsecured loans can be provided by public markets (high yield issue) and private placements (hedge funds, junior loan providers, investment bank providing balance sheet financing, etc. )O ften, the most junior piece on the capital structure will have equity warrants attached; the most junior lender will require a much higher rate of return than the more senior lenders The financial sponsors want to attain as much of the lower-priced debt as possible; in this example, we have assumed that total senior leverage (revolver + term loan) = 2. 0x EBITDA The example shows a 4. 5x EBITDA leverage ratio, and 1. 7x EBITDA equity ratio (LTM EBITDA is $60 million in this case) Capitalization Cash Revolver Term Loan Senior Bonds Unsecured Notes with Warrants Total Debt Sponsor Equity Total Sources TOTAL SOURCES Amount EBITDA % of Funded Multiple Capitalization $0. 0 0. 0x 0. 0% 0. 0 0. 0x 0. 0% 120. 0 2. 0x 32. 1% 90. 0 1. 5x 24. 1% 60. 0 1. 0x 16. 0% 70. 0 4. 5x 72. 2% 104. 0 27. 8% $374. 0 100. 0% 12 Interest Rate Cash Pay PIK 7. 0% 7. 5% 9. 5% 0. 0% 0. 0% 0. 0% 0. 0% 10. 0% % of Fully Diluted Equity na na na 5. 0% Creation of Proforma Balance Sheet Proforma Balance Sheet ($ in millions) Balance Sheet Assets Cash Accounts Receivable Inventory Other Current Assets Total Current Assets Historical Dec. 31 2008 $0. 0 $16. 0 $10. 0 $1. 0 $27. 0 Financing/ Transaction Adjustments $0. 0 0. 0 0. 0 0. 0 $0. 0 Proforma Dec. 31 2008 $0. 0 16. 0 10. 0 1. 0 $27. 0 Gross PP&E Cumulative Depreciation Net PP&E $323. 2 $45. 0 $278. 2 $0. 0 0. 0 $0. 0 $323. 2 45. 0 $278. 2 Amortizable Intangibles GoodwillTotal Assets $0. 0 5. 0 $310. 2 $8. 0 65. 2 $73. 2 $8. 0 70. 2 $383. 4 Liabilities Accounts Payable Accrued Liabilities Other Current Liabilities Total Current Liabilities $11. 0 $2. 4 $0. 0 $13. 4 $0. 0 0. 0 0. 0 $0. 0 $11. 0 $2. 4 0. 0 $13. 4 Existing Debt Revolving Credit Facility Term Loan Unsecured Debt $40. 8 $100. 0 $50. 0 New Debt Revolving Credit Facility Term Loan Second Lien Unsecured Debt $0. 0 0. 0 0. 0 0. 0 $0. 0 $120. 0 $90. 0 $60. 0 $0. 0 $120. 0 $90. 0 $60. 0 Other Liabilities Total Liabilities $2. 0 $206. 2 $0. 0 $79. 2 $2. 0 $285. 4 Shareholders Equity Re tained Earnings Common Stock Total Shareholders Equity $94. 0 10. 0 $104. ($100. 0) $94. 0 ($6. 0) Total Liabilities and Equity Check $310. 2 $0. 0 $73. 2 $0. 0 ($40. 8) ($100. 0) ($50. 0) $0. 0 $0. 0 $0. 0 ($6. 0) 104. 0 $98. 0 $383. 4 $0. 0 13 Creating a proforma balance sheet on a new worksheet allows for the integration of the new capital structure / sources into the existing financial model In the purchase of a private company, the seller typically sweeps all of the cash on the balance sheet at closing In the LBO of a publicly traded company, cash would not typically be swept as it is part of the offer price per share There may be a writeup or writedown of the value of the AR, Inventory and PP&E; this has an mpact on the tax basis All financing fees incurred in the transaction can still be capitalized and amortized The Goodwill is Purchase Price + M&A Fees – New Debt – Old Book Value of Equity; this amount can no longer be amortized In the purchase of a public com pany, goodwill is calculated as equity value of purchase – book value of equity The buyer typically assumes all of the normalcourse short term liabilities The â€Å"old debt† is eliminated (as the seller typically uses proceeds from the sale to pay all existing debt) In the purchase of a public company, often the existing debt of the acquired company remains outstanding, and is â€Å"assumed† by the acquirerThe â€Å"new debt† is fed from the Total Sources cells Shareholders’ Equity may require a plug to allow for the Total Assets to equal Total Liabilities + Shareholders’ Equity Creation of Proforma Balance Sheet ($ in millions) PROJECTED FINANCIAL STATEMENTS Fiscal Year Ending December 31, 2009P 2010P 2011P 2012P 2013P 2008A Pro Forma 2008P Balance Sheet Assets Cash Accounts Receivable Inventory Other Current Assets Total Current Assets $0. 0 $16. 0 $10. 0 $1. 0 $27. 0 $0. 0 $16. 0 $10. 0 $1. 0 $27. 0 $0. 0 $17. 5 $10. 5 $1. 0 $29. 0 $0. 0 $18. 4 $11. 0 $1. 0 $30. 4 $1. 9 $19. 3 $11. 6 $1. 0 $33. 8 $7. 5 $20. 3 $12. 2 $1. 0 $40. 9 $0. 0 $21. 3 $12. 8 $1. 0 $35. 0 Gross PP&ECumulative Depreciation Net PP&E $323. 2 $45. 0 $278. 2 $323. 2 $45. 0 $278. 2 $337. 9 $51. 8 $286. 1 $353. 3 $58. 8 $294. 5 $369. 5 $66. 2 $303. 3 $386. 6 $73. 9 $312. 6 $404. 4 $82. 0 $322. 4 Amortizable Intangibles Goodwill Total Assets $0. 0 $5. 0 $310. 2 $8. 0 $70. 2 $383. 4 $6. 4 $70. 2 $391. 7 $4. 8 $70. 2 $399. 9 $3. 2 $70. 2 $410. 5 $1. 6 $70. 2 $425. 4 $0. 0 $70. 2 $427. 6 Liabilities Accounts Payable Accrued Liabilities Other Current Liabilities Total Current Liabilities $11. 0 $2. 4 $0. 0 $13. 4 $11. 0 $2. 4 $0. 0 $13. 4 $11. 7 $2. 5 $1. 0 $15. 2 $12. 3 $2. 6 $1. 0 $15. 9 $12. 9 $2. 8 $1. 0 $16. 6 $13. 5 $2. 9 $1. 0 $17. 4 $14. 2 $3. 1 1. 0 $18. 2 Existing Debt: Revolving Credit Facility Term Loan Unsecured Debt $40. 8 $100. 0 $50. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0 . 0 New Debt Revolving Credit Facility Term Loan Senior Bonds Unsecured Debt $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $120. 0 $90. 0 $60. 0 $1. 5 $100. 0 $90. 0 $66. 0 $1. 0 $80. 0 $90. 0 $72. 6 $0. 0 $60. 0 $90. 0 $79. 9 $0. 0 $40. 0 $90. 0 $87. 8 $3. 8 $0. 0 $90. 0 $96. 6 Other Liabilities Total Liabilities $2. 0 $206. 2 $2. 0 $285. 4 $2. 0 $274. 7 $2. 0 $261. 5 $2. 0 $248. 5 $2. 0 $237. 3 $2. 0 $210. 7 Shareholders Equity Retained Earnings Common StockTotal Shareholders Equity $94. 0 $10. 0 $104. 0 ($6. 0) $104. 0 $98. 0 $13. 1 $104. 0 $117. 1 $34. 4 $104. 0 $138. 4 $58. 0 $104. 0 $162. 0 $84. 1 $104. 0 $188. 1 $112. 9 $104. 0 $216. 9 Total Liabilities and Equity Check $310. 2 $0. 0 $383. 4 $0. 0 $391. 7 $0. 0 $399. 9 $0. 0 $410. 5 $0. 0 $425. 4 $0. 0 $427. 6 $0. 0 14 The Proforma Balance Sheet is then fed into the existing model’s balance sheet, and integrated appropriately into the cash flow and income statement We are assuming the transaction occurs on Dec. 31, 2008 Be careful whe n you are integrating to NOT CHANGE the income statement, balance sheet and cash flow statement for the period right efore the transaction date The income statement and cash flows for 2008 will not change because of the acquisition (as it occurs on Dec. 31, 2008, after the 2008 period has ended) Only the 2009 and onward income statement and cash flows will reflect the impact of the new capital structure / balance sheet Income Statement, Balance Sheet and Cash Flow Projections Integration The remainder of the projection model is completed as we discussed in the last class Construction of a debt and interest schedule and revolver model allows the integration of the income statement, balance sheet and cash flow projections Be careful to make sure that the cash flow for the period irectly following the transaction closing is being calculated as the changes in the proforma balance sheet and that period directly following the transaction 15 Table of Contents I. Uses for An LBO Model on Se ll-side and Buy-side Construction of LBO Model Structure and Assumptions Worksheet Purchase price calculation and considerations Sources and Uses II. Capital Structure Alternatives Integration of Proforma Balance Sheet into Financial Model Income Statement, Balance Sheet and Cash Flow Projections Integration III. IRR Analysis for Financial Sponsor and Hybrid Debt Lender IV. Sensitivity Tables V. Credit Ratios 16 IRR Analysis for Financial SponsorsThe financial sponsor’s IRR analysis accounts for all cash flows coming from the financial sponsor for or to the Company, as well as all cash flows from the Company to the financial sponsor during the period from closing the acquisition to the sale of the company (other than management fees) Often, the company pays the financial sponsor â€Å"management fees† in exchange for the financial sponsor’s ongoing support, management and advice provided to the management team as well as covering the financial sponsor’s d irect expenses and overhead allocation Management fees are expensed as an SG&A expense on the company’s income statement and range greatly, depending on company’s sizeTypically financial sponsors do not include the payment of management fees in the IRR analysis 17 IRR Analysis for Financial Sponsors Amounts that the financial sponsor pays for or to the company are counted as cash outflows; examples include Initial equity investment Any additional equity investments made into the company during the holding period Any amount received by the financial sponsor from or by the company are counted as cash inflows (other than management fees); examples include: Proceeds from sale of the company Common or preferred dividends paid to financial sponsor Proceeds from a recapitalization 18 IRR Analysis for Financial SponsorsCalculate the sale of the business, assuming it is sold on December 31, 2013 Use the 2013 projected EBITDA, and the same EBITDA multiple assumption used for the purchase of the Company in 2008 Calculate the proceeds to the financial sponsor, taking into account any equity dilution that may result from warrants, management stock plan, transaction fees, etc. SALE OF COMPANY A IN 2013 Closing Date 31-Dec-13 2012 EBITDA EBITDA Multiple Transaction Value Less: Total Debt Plus: Cash Balance $76. 6 6. 0x $459. 5 (190. 5) 0. 0 Less: Transaction Fees (1) Equity Value % Equity to Sponsor Equity to Sponsor (6. 6) $262. 4 95. 0% $249. 3 % Equity to Unsecured Lender Equity to Unsecured Lender 5. 0% 13. 1 (1) Assumes 1% of Purchase Price for Investment Banking Fees, plus $2 million in legal and other expenses. 19 IRR Analysis for Financial Sponsors The following table illustrates the categories to calculate the IRR to the financial sponsor Any cash flow from the financial sponsor for or to the company is negative Any cash flow from or for the company to the financial sponsor is positive In general there is no closed-form solution for IRR, particularly w ith variable cash flows for each year; however, excel can easily calculate the IRR using the following formula: = IRR (total cash flows over period, estimated IRR) From Total Sources tableSALE OF COMPANY A IN 2013 Closing Date 31-Dec-13 2012 EBITDA EBITDA Multiple Transaction Value Less: Total Debt Plus: Cash Balance Less: Transaction Fees Equity Value % Equity to Sponsor Equity to Sponsor $76. 6 6. 0x $459. 5 (190. 5) 0. 0 (1) % Equity to Unsecured Lender Equity to Unsecured Lender IRR to Financial Sponsor Initial Equity Investment Dividends Proceeds at Sale Total Cash Flows to Sponsor IRR Calculation 12/31/08 ($104. 0) 0. 0 0. 0 ($104. 0) 19. 1% 12/31/09 $0. 0 0. 0 0. 0 $0. 0 12/31/10 $0. 0 0. 0 0. 0 $0. 0 12/31/11 $0. 0 0. 0 0. 0 $0. 0 12/31/12 $0. 0 0. 0 0. 0 $0. 0 12/31/13 $0. 0 0. 0 249. 3 $249. 3 (6. 6) $262. 4 95. 0% $249. 3 5. 0% $13. 1IRR = IRR (Total Cash flows to sponsor 2009 – 2013, estimated IRR) 20 IRR for Hybrid Securities Holder The following table illustrate s the categories to calculate the IRR to the Unsecured Lender Recall from the sources and uses, that the unsecured lender loaned an amount of $60 million at a 10% PIK interest rate, with equity warrants equal to 5% of the fully-diluted equity of the company upon a sale Any cash flow from the lender to the company is negative (initial loan) Any cash flow from the company to the lender is positive (includes any cash interest received during the period, the payment of the principal balance plus any accrued interest at maturity, and equity to the unsecured lender at a sale)In certain cases, the exercise of the warrants would require the payment by the warrant holders to the Company of an exercise price; the proceeds from the warrant exercise would be a source of cash for the seller This is very transaction-specific and would be extensively negotiated in the agreement between the company and the lenders From Total Sources table IRR to Unsecured Lender Initial Loan Cash Interest Received Principal Repayment at Sale Equity from Warrants at Sale Total Cash Flows to Lender IRR Calculation From Debt and Interest Schedule – Cash Interest only 12/31/08 ($60. 0) 0. 0 0. 0 0. 0 ($60. 0) 12. 8% 12/31/09 $0. 0 0. 0 0. 0 0. 0 $0. 0 12/31/10 $0. 0 0. 0 0. 0 0. 0 $0. 0 12/31/11 $0. 0 0. 0 0. 0 0. 0 $0. 0 12/31/12 0. 0 0. 0 0. 0 0. 0 $0. 0 12/31/13 $0. 0 0. 0 96. 6 13. 1 $109. 8 From Balance Sheet IRR = IRR (Total Cash flows to lender 2006 – 2010, estimated IRR) 21 Table of Contents I. Uses for An LBO Model on Sell-side and Buy-side Construction of LBO Model Structure and Assumptions Worksheet Purchase price calculation and considerations Sources and Uses II. Capital Structure Alternatives Integration of Proforma Balance Sheet into Financial Model Income Statement, Balance Sheet and Cash Flow Projections Integration III. IRR Analysis for Financial Sponsor and Hybrid Debt Lender IV. Sensitivity Tables V. Credit Ratios 22 Sensitivities on Financial ModelRunning sensit ivities on your LBO assumptions is a good check to make sure the model is running properly as well as being able to show how a change in one variable will impact the whole model Sensitivity tables illustrate the impact on the model for a range of variable changes, and this LBO model has the flexibility to run sensitivities on the LBO assumptions (purchase price, capital structure, etc. ) and the business’s operations (growth rates, margins, etc) to see the impact on the expected IRRs of the financial sponsor and unsecured lender Setting up a sensitivity table: Input a range of variables on the x-axis of the chart Input a second range of variables on the y-axis of the chart link the intersection cell on the left hand corner of the chart to the cell that has the proper formula Highlight the data sensitivity tableGo to â€Å"Data† toolbar, select â€Å"Table†; a box pops up that has Row Input Cell and Column Input Cell – – For Row Input Cell, click on the cell that has the driver / assumption input for the x axis variable For the Column Input Cell, click on the cell that has the driver / assumption input for the y axis variable 23 Table of Contents I. Uses for An LBO Model on Sell-side and Buy-side Construction of LBO Model Structure and Assumptions Worksheet Purchase price calculation and considerations Sources and Uses II. Capital Structure Alternatives Integration of Proforma Balance Sheet into Financial Model Income Statement, Balance Sheet and Cash Flow Projections Integration III.IRR Analysis for Financial Sponsor and Hybrid Debt Lender IV. Sensitivity Tables V. Credit Ratios 24 Credit Ratios In determining how much money to lend to companies / financial sponsors for an acquisition, lenders analyze the amount of coverage they will have on their loans Lenders typically look at the following projected credit ratios, based on the base case scenarios, and then will run stress tests on the model to look at the impact on these r atios in the event the company takes a turn for the worse Leverage Ratios Total Debt / EBITDA Net Debt / EBITDA Secured Debt / EBITDA EBITDA / Net Interest Expense EBITDA / Cash Interest Expense 4. 1x 4. 1x 3. 0x 2. 8x 3. 7x 3. 7x 3. 7x 2. 6x 3. 0x 4. 3x 3. x 3. 3x 2. 2x 3. 3x 5. 0x 3. 0x 2. 9x 1. 8x 3. 6x 5. 9x 2. 5x 2. 5x 1. 2x 4. 1x 7. 5x Interest Coverage Statistics EBITDA / Net Interest Expense EBITDA / Cash Interest EBITDA – Capex / Net Interest Expense EBITDA – Capex / Cash Interest Expense EBITDA – Capex – ? W/C / Net Interest Expense EBITDA – Capex – ? W/C / Cash Interest Expense EBITDA – Capex – ? W/C – Taxes/ Net Interest Expense EBITDA – Capex – ? W/C – Taxes/ Cash Interest Expense 2. 8x 3. 7x 2. 1x 2. 9x 2. 1x 2. 9x 1. 6x 2. 1x 3. 0x 4. 3x 2. 3x 3. 3x 2. 3x 3. 3x 1. 7x 2. 4x 3. 3x 5. 0x 2. 5x 3. 8x 2. 6x 3. 9x 1. 8x 2. 8x 3. 6x 5. 9x 2. 8x 4. 5x 2. 8x 4. 6x 2. 0x 3. 2x 4. 1x 7. 5x 3. x 5 . 8x 3. 2x 5. 8x 2. 1x 4. 0x 25 Build an LBO Model from Scratch Build an LBO Model for Company B, using the historic financial statements (available electronically) Use the assumptions you feel are appropriate for projecting the Income Statement, balance sheet, and cash flow Use the following assumptions for the acquisition and financing: Acquisition – Closing date is December 31, 2008 – Purchase price is 7. 0x 2008 EBITDA Multiple Uses – Financing Fees are equal to 3% of purchase price – Investment banking fees are equal to 1% of purchase price – Legal fees are equal to $1 million – Other fees and expenses are equal to $1 million Sources Equity must equal 20% of total uses / sources – Revolver availability is $20 million, with total amount funded equal to 75% of Inventory and 65% of Accounts Receivable at a 5% cash pay interest rate – Term Loan is equal to 2. 5x 2008 EBITDA, to be amortized over 7 years, at a 5% cash pay inter est rate – Second Lien debt is equal to 1. 5x 2008 EBITDA, with a 10% cash pay interest rate – Unsecured Notes with Warrants fill the balance of the capital structure; 10% PIK rate with warrants equal to 15% of fully diluted equity upon sale of company Annual management fees to financial sponsor of $1 mm starting in 2007 Amortize fees over 5 year periodSale of Business in 2012 – Sold at 7. 0x 2012 multiple – Transaction fee equal to 1% of purchase price for investment banking fees plus $2 million in legal and other expenses Calculate the IRR to the financial sponsor Calculate the IRR to the unsecured lender with warrants Calculate sensitivity tables for the following: – IRR to financial sponsor for range of multiples paid and equity investment as % of total capital – IRR to unsecured lender for range of multiples paid and equity investment as % of total capital – Maximum revolver drawn for range of multiples paid and equity investment as % of total capital Add summary and credit ratios tables 26

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Idea of rebellion against the Martin Luther King - Essay Example Getting to understand the issues that the clergymen were raising, one is left with more questions than answers. From my point of view, I saw these as more of political fanatics. The point that Luther was raising was clear and straightforward, while the counteraccusations holding no firm ground. I realized that in life, even the very people that one is fighting for could fight you back. The eight Clergymen based in Alabama did not quite understand the motivation behind Luther or they were ignorant, because racial discrimination affected them too. I learnt a lot about the historical perspective of democracy and the hard path of attaining a racially equal society. Such knowledge is very important for the future generations to understand where our country has come from. Question 2 The world is a dangerous place characterized by disasters and destructive activities. Disasters have denied generations’ access to vital information that could have otherwise helped build on the existing knowledge. Humans are both destructive and constructive; humans through wars, and fires and other human activities have done a majority of the destruction of knowledge resources. These activities are either accidental or sometimes intentional while others are part of the global destruction of a given area. In addition, natural disasters such as earthquakes, volcanoes, landslides, and floods among others have contributed to knowledge loss. Knowledge is lost when libraries are destroyed, important information bearing sites are destroyed or an ongoing research is terminated without trace. Historical information suggests destruction of very many resources as a result of human made activities. Wars are the major contributor of all the destruction of knowledge resources; they sometimes result to other destructors such as fires and looting. The history of library destruction dates back at around 206 AD as a result of a war in China. The result was the destruction of the Epang Palace and S tate Archives, leading to destruction of volumes of resources as well as death of many scholars. Other landmark destructions include the destruction of the Library of the Alexandria, one of the respected and highly used libraries by the early scholars especially because of the many volumes of books and scrolls available. The library was strategic, being one of the early centres of civilization and having a close proximity with Greece, Rome and the Mesopotamia provided an ideal ground for study and knowledge development. The destruction of the library was consecutive leading to the shift of the knowledge base in Egypt to be at the Library of Serapeum that was also later destroyed. These incidences resulted into loss of much knowledge that had been stored therein. Books, periodicals, publications, journals, on going research proposals, tablets, and artistic knowledge bearing pieces of work among others have been destroyed. Destruction of the Nalanda centre in India saw the decline of Buddhism because all the important knowledge was lost. In England, the Glassney College Library was destroyed resulting to loss of some good amount of books. After America gained independence, its Congress Library was destroyed in 1812 after the invasion by the British Army troops who captured the city of Washington and burnt it, in the process many books were destroyed and other materials that were being used by the Congress for their study and research. The Civil War had a great impact on the institutional libraries in the city of Washington where books were burnt, looted and physically destroyed. In addition, the war destroyed the University of Alabama Library. Outside United States, the Public Records Office in Ireland was put into flames, the Japanese troops destroyed various libraries in China, and

Internship Plan Journal Entry Assignment Example | Topics and Well Written Essays - 250 words

Internship Plan Journal Entry - Assignment Example The first goal is to analyze sales and report the findings. Specifically, I was to understand the market trends. The two actions that I did are visiting other companies to collect data. I also did research on other companies sales. This goal was accomplished by the end of the week, 30th January 2015. The purpose of this goal was to understand how analysis of sales data is utilized to comprehend market trends. I measured my progress by first analyzing the sales data that has been collected. The second goal that I purposed to accomplish is to gather and interpret customer feedback.Specifically,I was to understand the customer trends. The two actions that I did were collection of the customer’s feedback on suggestion box and also did a research on the customers. The purpose of this goal is to contribute to consumer insight initiative within the organization. This goal will enable me to develop my skills in gathering and interpreting customer feedback. I look forward to taking this next step as I finish up with my training in sales data analysis. The set time frame for achieving this goal is the second week of February that is from 4/2/2015. My third goal entails conducting primary research for the organization’s products. Specifically, I did analyzed the effectiveness and usability of the company’s product. The two actions that I did involved researching on products sales and also questioning the customers. The purpose of accomplishing this goal is to enhance my comprehension and skills involving product research. I can easily measure this goal because I will be able to perform the specific task by the end of my training. This goal is attainable as I have already had exposure in conducting market research for the company. This is a realistic goal because I have the support and expertise of my co-workers coupled with the support of my supervisor. The timeframe of achieving

Analyze Emil Sinclair's development on the book Demian by Herman Hesse Essay

Analyze Emil Sinclair's development on the book Demian by Herman Hesse - Essay Example Reading through the story makes it quite subtle that it deals with an internal development of Emil Sinclair; all the same, the overall result delivers a transformation from that personal bit to arrive at a universal meaning. At the young age of ten, Emil Sinclair first identifies two different sides of life, the light and the dark side of life also represented by good and evil. Each of these two sides of life is represented by actual phenomena, for instance, the light also the good side of life is represented by Sinclair’s family, home and their customs and traditions. The dark side of life is transient both with experiences in his life as well as imaginations in his mind. An example of this is Sinclair’s world as filled with servant girls and ghost stories. Sinclair continuously envisions images of ghosts and the devil somewhere in the neighborhood but these are never present at his own home (Hesse, Egon and Ingrid 222). These perceptions and the likelihood of the ghos ts and the devil around the neighborhood makes Sinclair prefer the safety and warmth of his home. At this stage, he perceives his life as holy â€Å"saintly† as he is born of righteous parents. ... Besides introduction to the dark world, Kromer acts as the guide to the novel world. Sinclair’s interaction with Kromer is the first apparent step in loosing his innocence and accommodating divergent ideas separate from those propagated by his parents. It opens him to the reality that there is much to the world than that he has been taught in class or has been told by the parents. During this period characterized by overwhelming new information on the dark world, Sinclair is still uncertain on how to handle and navigate through the dark world. At the same time, Sinclair is still awed by the information that Demain presents to him on Cain. At this point, he still has no definite framework to guide his thoughts or perceive the radical information presented to him (Hesse). This is perhaps the reason why Sinclair attempts to return to his parents after Demain frees him from Kromer. This is because the parents assure him of security and comfort and ensure predictability. Further de velopment comes with age and continuous interaction with Demain. Through this Sinclair is able to perceive a life beyond the strict systems and laws that restrict his life. Reaching adolescence he becomes more interested in women and the significance of confirmation classes wanes. The most revealing factor is that he feels very comfortable with this departure. It marks his transition from complete consciousness with the holy to a preference of his desires. Centrality of his desires is epitomized when he meets Beatrice, Beatrice represents an archetype of a person he wishes to associate with. This translates into an overwhelming desire and immense feelings, further they characterize a new phase where he grasps the importance

Food and Drug Association Assignment Example | Topics and Well Written Essays - 750 words

Food and Drug Association - Assignment Example Restriction on the extensive use of the tobacco products, nutritional appendages, preparation and over-the-counter medications, vaccines, and different kinds of biopharmaceuticals products. In common words, one can define FDA as a â€Å"scientific, regulatory, and public health agency† (Academy of Managed Care Pharmacy, 2013). The agency grew from a single chemist in the U.S. Department of Agriculture in 1862 to a staff of approximately 9,100 employees by 2001. The history of FDA is also an eventful one. It was initially known as Division of Chemistry and later on, after 1901 it was started to know as Bureau of Chemistry. The organization started to enjoy the power of regulating the operation of various companies after the implementation of Federal Food and Drugs Act by the US government in the year of 1906. The name was changed to the Food, Drug, and Insecticide Administration in July 1927 and from 1930 onwards the present name was incorporated (Academy of Managed Care Pharmacy, 2013). The act of 1906 was replaced in the year of 1936 in the USA when Tennessee Drug Company brings together and marketed a form of the new sulfa wonder drug, Elixir Sulfanilamide- which was a medicine for pediatric patients. The product was launched in the US market untested and the result was horrible. The solvent of this medi cine was highly toxic in nature which was the main reason behind the death of over 100 people in the country. Most of them were children. To control the anger of the people and at the same time make the food and drug products more secured the US government under the leadership of President Franklin D. Roosevelt signed the Food, Drug, and Cosmetic Act on 1938. This made the functioning of all different companies more systematic and there was more rigorous monitoring in place in terms of the standard and quality of the finished goods, the process associated with the production, quality, and standard of raw materials used etc.  

Strategy Intent Essay Example | Topics and Well Written Essays - 1500 words

Strategy Intent - Essay Example The concept of â€Å"strategic intent† was propounded by Hamel and Prahalad in 1989, which produced rippled effect in the galleries of corporate and strategic management. The over ambition of companies to succeed in all departments of business made them obsessed with the concept of global leadership irrespective of their capabilities; Hamel and Prahalad had given a different name to this desire of corporations to lead worldwide as â€Å"strategic intent†. Different conglomerates phrased their strategic intent like Komatsu gave the title â€Å"Encircle Caterpillar†, Canon initiated â€Å"Beat Xerox†. All these titles show the strategic intent of the companies. Interesting thing perceived in the description of the term by Hamel and Prahalad is elaborating the concept through examples of such companies having a strategic intent. Another important element of the concept is that it is a continuous active management process by corporations with the intention and focus straight on the winning spirit by inspiring employees for attaining targets by communicating with them; it is creating the stimulus for emotional and intellectual exercise to prepare for the future. A comparison between the strategic architecture that Prahalad and Hamel (1990) have discussed in ‘The Core Competence of the Corporation’ with the strategic intent by Hamel and Prahalad (1989) becomes natural. The strategic architecture on the one hand adds new functionalities, new competencies, transformation in current competencies and restructuring of communication with customers while strategic intent is symbolic of the heart of the components of strategic management of corporations. It enlarges to meet the challenges within limited available resources and capabilities. For getting competitive advantage managers are trying different strategies and go to the extent of partnering with

Formal memo(globalization) Essay Example | Topics and Well Written Essays - 500 words

Formal memo(globalization) - Essay Example The concept also relies of consensus and cooperation among nations (Boudreaux 2007) The world globalization was already used in the 1960s, but its true meaning was not sought until the 1990s, and especially after 9/11. Its meaning is not altogether clear to everyone. Perhaps the best definition was found by the Carnegie Endowment website: ‘Globalization is a process of interaction and integration among the people, companies and governments of different nations, a process driven by international trade and investment, and aided by information technology’ (Boudreaux 2007). Most of the world’s cooperation is unintentional and unstructured, and comes in the form of trade, and perhaps the cooperation of providing aid to poor countries, or that following some catastrophic disaster. Many think of globalization as something that causes competition among the world’s countries and their commerce, trade and exchanges. What many hope that globalization will bring is a beneficial coordination of the plans and actions of millions of people around the wo rld, as a system of global cooperation. Healthy competition combined with a model of cooperation when it comes to resources, the environment, pooling of services, and provision of goods, seems like a great combination. A vast web (Boudreaux 2007) of cooperation seems plausible when we consider the speed of modern transportation and communication. It is necessary, to minimize ecological impact. The readings I plan to make have a potential of several deductions and conclusions, which will be of great interest to companies, trade groups, environmental movements, industry leaders, social forums, commercial syndicates and lobby groups. My proposal can reach a number of these, of which I shall make a list. To have the greatest reach, a website with relevant information would be a good goal. 3. Globalization, a book by Donald Boudreaux, which provides some relevant information about its

Home and Family Essay Example | Topics and Well Written Essays - 1000 words

Home and Family - Essay Example Most of these parents are more concerned with their own lives than their children. In â€Å"After Making Love We Hear Footsteps†, the loving nature of a parent can be observed. After two parents make love their little boy always ran to sleep in between them. Instead of throwing the child out of their bed, the parents welcome him with open arms: These parents show their child love by accepting them into their very private bed. This child is the center of the universe for his parents. Unlike other examples that will be later given, this child will grow up to be confident and well adjusted. As will be presented, this situation is a very unique and rare example. â€Å"Orthello† shows one typical view of the parent/child relationship. Brabantio treats his daughter, Desdemona, like his personal property. Desdemona means as much to Brabantio as his gold. The following passage shows this emotion: Brabantio only cared about what Desdemona could do for him by marrying rich, than treating her lovingly. Desdemona was definitely on Brabantio’s peripheral vision, until she messed up his plans by marrying Orthello. other. After the father is laid off, he takes joy in others’ misfortune. Whenever a fire truck can be heard, the father takes is family out to watch the fires. The child only knows that he receives attention by his otherwise occupied father. He tells: Despite the suffering of the family whose house burned, the father feels justified because at least he still has a house. The child is ripped out of bed to see his father’s sick obsession. The parent is passing down his own issues to the child. The father could have easily gone to the fires alone. It would have been faster than taking a wife and five children along. The father wanted an audience, just like the wife went to keep peace. That is what the wife wanted to accomplish; peace. She felt

The Move from Doubt to Certainty Essay Example for Free

The Move from Doubt to Certainty Essay Descartes is interested in the certainty of his existence and the existence of other people and things. Descartes beliefs vary from those of Socrates. Descartes argues that knowledge is acquired through awareness and experience. Using this approach, Descartes moves through doubt to certainty of his existence. He asks himself various questions about the certainty of his existence and solves them through clear thought and logic. Using this method Descartes establishes doubts to be truths and by the end of the book, he has established that he does indeed exist. In this paper, I will show how Descartes moves through doubt to certainty. I will explain how Descartes uses the cogito, proves the existence of God and what that means to his existence. I will also discuss the general rules of truth that Descartes establishes. In the First Meditation Descartes begins to examine what is certain and what is doubtful. Descartes wants to establish that his knowledge is certain and not doubtful. He states, I had accepted many false opinions as being true, and that what I had based on such insecure principles could only be most doubtful and uncertain; so that I had to undertake seriously once in my life to rid myself of all opinions I had adopted up to then, and to begin, and to begin afresh from the foundations, if I wished to establish something firm and constant in the sciences. (Descartes 95) By this Descartes means that he wishes to establish a foundation for his knowledge based on certainty instead of doubt. Descartes first looks at the senses. This is important because the senses are the first thing to cause doubt. He focuses on the perception of things. He says that things far from him, in the distance, give him reason to doubt their certainty, while things that are close to him are indubitable and he is clear about their certainty. However, Descartes realizes that dreams pose an obstacle to his beliefs. Even up close, dreams can be indubitable. Descartes believes that if a person has had a dream that was so intense that the person could not determine it form reality, then they have reason to doubt objects that are close to us and appear to be indubitable. In order to resolve this problem, Descartes suggests that one must examine whether they are dreaming or not. Descartes realizes that he can not rely on his senses anymore to give him dubitable truths. He turns to find something that is indubitable. Descartes tries to use science as a foundation for truth. He discards physics, astronomy, and medicine because all three of them rely upon the senses. we shall not be wrong in concluding that physics, astronomy, and medicine, and all the other sciences that depend on the consideration of composite things, are most doubtful and uncertain (Descartes 98). However, Descartes finds that such things as geometry and arithmetic can be trusted because their are no senses involved. They are based upon logic. whether I am awake or asleep, two and three added together always makes five, and a square always has four sides; and it does not seem possible that truths so apparent can be suspected of any falsity or uncertainty(98). However, Descartes finds reason to even doubt this. The only thing that could makes these truths dubitable is through the intervention by an Evil Deceiver (God). Descartes cannot prove that God is good and has to acknowledge that God has the power to deceive. Therefore, Descartes must doubt all things until he can prove their certainty. Descartes comes to call this doubt Universal Doubt. In the Second Meditation, Descartes examine the existence of himself. He concludes that if he cannot prove something exists then how does he know with certainty that he exists. It is his doubt of his existence that Descartes uses to prove his existence. Descartes realizes that if he is able to doubt then he does indeed exists. He take the approach that, I think therefore I am to establish a certainty that he exists. This idea also known as the cogito becomes the central point that Descartes will use for the remaining of his meditations. Descartes affirms his existence every time he thinks, doubts, or is persuaded(Descartes 103). Descartes affirms that if there is an Evil Deceiver then Descartes must exist because in order for God to deceive, Descartes he must first exist. Although, Descartes has proved his existence he can only prove it in the mental capacity. He does not know for certain that he exists in the physical form. The only way, at this time, that Descartes can prove the existence of his body is through his senses. He has already established that his senses are dubitable and therefore cannot tell him with certainty that his body exists. In order to get a better understanding of his relationship between his body and mind, Descartes melts a piece of wax. He observes the wax in two different states, the first in a solid form and the second in a melted form. He questions how his senses can show him two entirely different forms of the same substance; yet he knows that the substance, in both states, although completely different, is wax. The mind was able to understand the essence of the wax. Although the senses were not entirely capable of making the connection between the two forms of wax, the senses assisted the mind in determining what the substance was. This experiment proves to be important to Descartes because he is able to make a link between the senses and the mind. Using his experiment, Descartes enters his Third Meditation using his general rule of truth that all things we conceive very clearly and distinctly are true(Descartes 113). However, there is one flaw to his thoughts. If God is an evil deceiver than this cannot be true. Descartes proceeds to establish that God is good and does not deceive. Descartes uses three points to establish the existence God. These points are ideas. The first one is adventitious ideas; those ideas that come from outside experiences. The second is invented ideas; those that are derived from the imagination such as sirens and chimera. The final is innate ideas; those that are within one when they are born. Descartes uses two more points to further establish that God exists. He uses the ideas of infinite and perfect. These two ideas, Descartes cannot account for. The only way for such things to come about would be from an infinite and perfect being such as God. These ideas have a direct relationship with God. In order for a finite beings such as Descartes to have a concept of infinite it must have been planted there by an infinite being such as God. Descartes concludes this idea to be true because one cannot derive the idea of infinite by negating the finite(Descartes 125). An example of this would be the use of a number line. The number line will never be able to illustrate infinity. One could negate every number on a number line and still not arrive at infinity. Therefore, Descartes concludes that God does exist and therefore is not an evil deceiver. Because God has supplied us with the innate ideas of perfection and infinity, God, therefore, must be infinite and perfect. Descartes states that, Whence it is clear enough that he cannot be a deceiver, for the natural light teaches us that deceit stems necessarily from some defect(Descartes 131). Since God is perfect he is not an evil deceiver. It is important to realize that by the time Descartes has reached his Fourth Meditation he has proved three important things. The first is that doubt is not universal. The second is that there is a general rule of truth. The third is that God exists and cannot be an evil deceiver. However, Descartes raises a question: If God exists and cannot be an evil deceiver then why are humans imperfect and perpetually making errors? Descartes explains this through the explanation of free will. Descartes states that God has given all humans free will. This is the cause of human error. Because we have free will, humans are able to make choices and decisions free from the influence of God. Sometimes free will interferes with Gods ability to help humans and therefore humans sometimes make poor decisions. If God did not give humans free will than God would play a direct role in every decision made by humans. It is because God gives humans free will that allows for human error. Descartes Fifth and Sixth Meditations begins with the establishment of his remaining doubts and the application of what he has discovered. The first question deals with the essence of color, mathematical, and geometrical truths. The second is the existence of people and things. The third is determining the difference between dreams and reality. Descartes reiterates that God is not an evil deceiver and therefore he can clearly conceive something to be true. He reiterates that if he conceives God correctly then God is perfect. Imperfection is not compatible with Gods omnipotence. A non-existent thing cannot be perfect. Even a non-existent perfect thing is imperfect and all perfect things are perfect. Descartes also restates that a perfect thing cannot deceive. With this knowledge, Descartes proceeds to solve his second problem. The existence of corporeal(physical things) exist with certainty. Since God is not an evil deceiver, the idea of physical things is accurate. Although some perceptions will still be blurry and may confuse Descartes objects do indeed exist. He concludes that he just has to be more judgmental of those perceptions. But as concerns other things, which are either only particular, as,, for example, that the sun is of such a size and shape, etc. , or are perceived less clearly and distinctly, as in the case of light, sound and pain and so on, although they are very doubtful and uncertain, nevertheless, from the fact alone that God is not a deceiver, and has consequently permitted no falsity in my opinions (Descartes 158) Descartes now knows for certain that he has a body. Descartes realizes that, I have a body, which is ill disposed when I feel pain, which needs to eat and drink when I have feelings of hunger or thirst etc. (Descartes 159). Because of these feeling that Descartes has and because God is not an evil deceiver than Descartes is indeed lodged in a body and is an entire entity with it. Descartes finally analyzes his third doubt. He now has the ability to distinguish between being awake and dreaming. When we are awake, Descartes states, are mind flows in an uninterrupted, continuous sequence. When we are dreaming, our mind does not flow in a consistent, and undisturbed sequence. When a person has a break in the consistency of events, they are dreaming. when I perceive things which I clearly know both the place they come from and that in which they are, and the time at which they appear to me, and when, without any interruption, I can link the perception I have of them with the whole of the rest of my life, I am fully assured that it is not in sleep that I am perceiving them but while I am awake(Descartes 168) After establishing certainty to his doubts, Descartes states, And I must reject all the doubts of the last few days as hyperbolic and ridiculous, particularly the general uncertainty about sleep, which I could not distinguish for a wakeful state (Descartes 168). With that Descartes concludes his meditations and uncertainties. Although Descartes makes a sound argument there were some people that disagreed with his theories. One of those people was John Locke. The beliefs of Locke, who was an empiricists, were similar to those of the Sophist during the time of Socrates. He argued that when a person was born their mind was empty. A person obtained knowledge through experiences. He also felt that if a person misinterpreted an experience it could lead to doubt or skepticism. Locke tries to prove Descartes wrong by saying that there are no innate ideas. He states that by understanding our own mind we can deter doubt. Locke proposes three separate possibilities about truth. The first is that there is no such thing as truth. The second is that there is no way to obtain truth. The third reason is that we can understand implied things but not be absolutely certain about them. Locke believed that we never deal with certainty and everyday we deal with possibility. and it will be unpardonable, as well as childish peevishness, if we undervalue the advantage of our knowledge and neglect to improve it to ends for which it has given us, because there are some things that are set out of the reach of it. (Locke 57). Locke states that not all innate ideas come from natural ability. He says that a universal consent does not prove innate ideas. They could arise from experience. Locke supports this theory by saying that innate ideas are neither in children nor idiots. If these ideas were innate then everyone would have them. He further states that mathematical truths are learned from experience and are not innate ideas. Descartes and Locke were two men with completely different views. They each set out to prove their own existence in a different fashion. Although they do not agree with each other, each one of them presents a clear and intelligent argument. It is these arguments that have encouraged the human race to consider the possibility of existence long after the death of Descartes and Locke. People will continue to debate their viewpoints for years to come and maybe, one day we will know the meaning of existence.

Ethical Egoism And Virtue Ethics Philosophy Essay

Ethical Egoism And Virtue Ethics Philosophy Essay Ethical Egoism minds the interests which one takes within them but not ones wishes. Self interest is necessary in the sense that, it is not good to always better oneself but just to be true to you. The things that somebody commits towards their satisfaction should not negatively affect the third person. My support for Ethical Egoism is that one does basically what is right to him/her, but in beneficial or neutral senses only when turns out to what others around might not gain. There are three formulations of ethical Egoism universal, individual and personal. Individual Ethical Egoist argues that all individuals ought to do what benefits them. Personal ethical egoist says that some one ought to act by his/her own self interest, only that he makes no claim concerning what any body else supposed to do. The universal ethical egoist claims that everybody is ought to act in means that are in their own interest. I believe that it is quite good to move out and earn then get what you want, im prove yourself and just be happy. On the notion of invading other persons happiness I decline on that. Virtue ethics illustrates the character of moral agent as the steering for the ethical behavior, rather than consequentialism or deontology which derives wrongness or rightness as the result of the act but not the character. For example in the case involving an individual making a lie, a virtue ethicist focuses less on lying an d instead considers the decision to tell a lie or even not tell the lie mentioned pertaining moral behavior and ones character. Thus lying will be handled on case-by-case basis depending on factors like group benefit, personal benefit and the lie intentions (that is whether they were malevolent or benevolent). Virtue ethicist emphasizes on the grounds that helping others is charitable or benevolent. Virtue ethics is both new and old approach to ethics. It was regarded as to be emphasizing on a few interesting points like the character and motives of moral agents that utilitarian and deontologists could incorporate in to their approaches. Deontological theories are duty based; morality based on deontologists involves the fulfillment of duties and moral obligations. According to the deontological tradition, duties involve absolute moral rules obeying. Thus for a human being to uphold a law or rule they are required morally to do or not to do certain activities/acts. The wrongness or rightness of moral rule is independent determined of how pleasure or happiness was distributed as the outcome of not abiding or abiding by the rule. In real life situations our duties towards others doesnt necessarily decrease pain or increase pleasure. In America around nineteenth-century the anti-slavery movement members had views that slavery was wrong, despite the fact that slave holders benefited from it economically. The Deontologist views are that if American government conducts cost benefit analysis of slavery and directs it made more pleasure in community than pain, still it must be wrong. An extreme utilitarian argues that rules are simply rules we use to avoid figuring possible judgments of our actions. Utilitariasm remarkably have the tendency of haunting those of us who finds it difficult to believe in it. It is our feeling forever that it is ought to be right, though our insisting of it being wrong. Something steers us towards utilitarianism, consequentialism is what makes utilitarianism radically wrong. Self control is the ability to control ones behavior, emotions and desires in order gain on a latter date. Self control is related to the pressure subjected to an individual. The person might be in good pressure; when a person is in a competitive, non-prejudicial and non-judgmental environment, the person may desire to feel like those surrounding him. An individual may become inspired and motivated and thus gains self control. When an individual experiences bad pressure he/she is in prejudicial and judgmental environment and there lacks competition, the individual may become unmotivated and depressed thus losing the self control. When No Pressure the person is free, can do what may feel, there is no competition thus self control depends on the feelings of the individual. An individual might happen to be motivated or less motivated depending on the urgency of the undertakings. The importance of self control triggers choosing, and then persevere with behavior, thought and actions which results to success and improvements. It gives the inner strength and power to overcoming, addictions, laziness procrastination thus following through whatever you do. Self control leads to self esteem, self confidence and inner strength, also to happiness and satisfaction. Low self control people are unable to delay gratification, for people focus is on the present. The seven year old boy in Australia was to be crowned a king of low self esteem. Early one morning, the boy secretly went in the house of the reptiles and began killing them. The boy then took a lizard and killed it and mounted on the fence to give it to others as food. The theory of low self-control is depicted by this behavior. The seven year kid suggested that the beginning of such behavior is early. The action of the boy was without any thought about the outcomes his behavior would bring. The security cameras featured him smiling while killing the animals. The boy never showed a sense of empathy for the zoo neither the animals keepers taking lots of risks. The boy not only managed to dive past the security system but still climbed over the fence to have a closer look at the crocodile meantime endangering his little flesh. The boys behavior proposes that his parents are particularly ineffective. The parents of great concern can not allow the little young to go missing for such extended period of time without eyeing them. According to low-self esteem theory there were higher expectations about the boy continuing with such low self-control behaviors from childhood then to adolescence and then into adulthood probably tuning from harming animals to harming people. Most likely the boy wont be feeding people to crocodiles. Self control theory predictions can be a lengthy criminal record. Sociologists made this approach as a criminal behavior; psychologists have been studying development of similar theories for several years just before self control theory. Immediate gratification, impulsivity, risk-taking are very well established concepts in the bases of psychological accounts of deviance and crime. Low self-control manifests in a quite different ways. People showing low self-control can not delay gratification; they do such simply because they are focused on the present. Is just like they want it now, thus it results to people of low self control acting impulsively.