Question

Discussion Board – Capital Expenditure Decisions

Mergers and acquisitions are capital budgeting techniques. This technique is a managerial expansion decision to increase assets drawing a cash benefit. Research a most recent merger or acquisition and discuss the firm (merger – stable firm / acquisition – purchasing firm) expected cash benefit. Pretend you are the owner; would you make the same decision? Why or Why Not?

need 300 words

Answer 1

Capital budgeting involves choosing projects that add value to a company. The capital budgeting process can involve almost anything including land or purchasing fixed assets. Companies are advised to take all those projects which increase the profitability and enhances shareholders' wealth.

Why do companies merge or acquire-

1)Mergers and acquisitions are the facts of consolidating companies or assets, with an eye towards stimulating growth, gaining competitive advantage, increasing market share, or influencing supply chain.

2)A merger describes two companies uniting, where one of the companies ceases to exist after becoming absorbed by the other.

3)An acquisition occurs when a company obtains the majority stake in the target firm, which retains its name and legal structure.

Merger of Heinz and kraft food-

The Kraft Heinz company commonly known as Kraft Heinz is an American food company formed by the merger of kraft foods Heinz with headquarters in Pittsburg, Pennslyvania, and Chicago Illinois. It is 3rd largest food beverage company in North America and 5th largest in the world with a $25.0 billion annual sales as per 2019.

The merger of both the company was agreed by the boards of both the company with the approval of shareholders and authorities in 2015. For the fiscal year 2017, kraft Heinz reported earnings of US$11.0 billion, with annual revenue of US$26.2 billion.

Heinz recorded a net loss of $164 million in the second quarter of 2015. This compares to a net income of $127 in the same period a year ago. The company said its results were impacted by the foreign exchange translation rates in all segments of its business as well as increased in marketing cost in North America.

On the other hand, kraft reported a net income of $551 million for the second quarter which compares to income of $482 million in the second quarter of 2014. Sales for the quarter were $4.5 billion down slightly from $4.7 billion in the same year ago.

It was a good decision to merge with kraft food because Heinz was facing losses and it helped both the company to grow in the market.

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