Question

In: Operations Management

Corporate restructure has a major impact on human resource activities. HR professionals collaborate and advise their...

Corporate restructure has a major impact on human resource activities. HR professionals collaborate and advise their corporate partners on these major decisions, and their implementation impacts and rallies the services provided from every specialty within HR. In Chapter 9, we learned some new analytical measures that help us evaluate these major investments and changes. Please use what you learned to discuss the following:

1. Why do we calculate terminal value when valuing a business if we did not use it for the team projects?

a. What would influence a Technology industry corporation's make or buy decision if it wanted to add a new IT consulting services division specialized in social media data mining?

b. When two corporations merge, how are the newly-formed business entity's HR activities impacted? What activities would HR undertake to integrate the two former companies into this new entity?

c. Instead of valuing a company based on its debt and equity, what would be the difficulty of valuing all the assets of a business?

Solutions

Expert Solution

1) Terminal value of the project is calculated as it provides the value of a business or project beyond the forecast period in order to estimate the future cash flows. Thus, it assumes that businesses grow at a specified rate forever even after the forecasted period, which helps in identifying the value for that period. It consists of a large percentage of the total assessed value.

a) The IT company would analyze the costs and benefits associated with making and buying the consulting services division before undertaking the actual decision. The fundamental factors that would influence this decision are costs of making vs buying the division within or from another company; availability of required materials for introducing the division; availability of enough resources for buying the services division from another company; skill or expertise to make it within the company; presence of people, equipment or facilities for making the products required in such division and the availability of enough cash.

b) Various HR activities that are affected after merger or acquisition are selection of integration manager, designing and developing new teams in the merged company, creating new leaderships, structures and strategies, retaining the key employees, motivating the new and existing employees to work together, monitoring the change process, communication with the stakeholders and the development of new HR policies and practices. The activities that would be undertaken for the new entity are selecting appropriate candidates, ensuring a successful transition and combination of employees from both companies through effective team design, improving the communication flow throughout the new company, undertaking decisions of which employees to retain and let go and establishing a new organizational culture, structure, HR policies and practices.

c) Asset-based valuation of a company refers to the approach where the valuation emphasizes on the assets of the business or on the fair market value of the total assets after deduction of liabilities. However, this method does not take into consideration the prospective earnings of the company, which creates problem the business value is much higher than the disposal value of existing assets. Besides, it becomes difficult to measure the intangible resources in this method. In addition, the approach becomes complex when businesses lack the objectivity level and accuracy of measuring the actual worth of their assets.

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