Net present Value, Mergers and acquisitionsAccording to Arshad (2012) Net present value actually calculates the amount of money in excess of the initial investment outlay from discounting future inflows with a firms average cost of capital. The decision criterion is that if the net present value is greater than 1 (one) the firm should accept the investment but if it is less than 1 (one) the firm should reject the investment opportunity. For mutually exclusive projects therefore a firm should only accept those projects with a net present value of more than 1 (one) and reject those with a net present value of less than 1(one). The general rule is that the bigger the net present value figures the better for investment purposes. The project with the largest net present value should be selected over the one with a smaller net present value figure.In the case below Google is considering investing in a new project or business opportunity that will have initial cash outflow (cost) of $1,750,000. In this case Googles cost of capital is 14%. The project is expected to bring in future cash flows as shown in the table below.In order to calculate the projects net present value we start by calculating the present value of the cash inflows.Present Value (PV) of Cash Flows (CF) =CF/ (1+r)+ CF/ (1+r)+ CF/ (1+r)+ CF/ (1+r)+ CF/ (1+r) CF / (1+r)Whereby;PV=Present valueCF= Cash flow to be received in period nr=Discount raten- Time period with which the cash inflows will be receivedIn year 0 the present value is equal to initial capital outlay.Present Value (PV) in year 1 =>PV =350,000 / (1+0.14)^1=>350,000 / 1.14 = Present Value (PV) in year 2=> PV = 630,000 / (1+0.14)^2Present Value (PV) in year 3=>PV=700,000 / (1+0.14)^3Present Value (PV) in year 4=>550,000 / (1+0.14)^4Present Value (PV) in year 5=>850,000 / (1+0.14)^5Net present value therefore is total present value of cash inflows less initial capital outlay (cost)Hence Net Present Value (NPV) of Googles new proposed project is as followsBased on the foregoing analysis the project has a net present value of = $281,369.66 which is more than 1 (one). The decision criterion in net present value concept is that if a project has a net present value of more than 1 (one) it can be accepted but if it has a net present value of less than 1 (one) it should be rejected. It would therefore make a wise investment decision for Googles shareholders and executives to invest in the new proposed project.The acquisition of Groupon, which runs a daily deals website, by Google would benefit the shareholders of both firms in several ways. During negotiations of the deal, Groupon benefited from association with Google for its revenues increased tremendously and its reputation in the market greatly improved (Winkler, 2010). In 2010, Groupons sales revenue surged to $760 million compared to $33 million realized in the previous year of 2009. The market price of Groupon also rose tremendously which increased the shareholder wealth. In this scenario the shareholders of both companies are likely to receive high dividends and also would make capital gains if they sold their shares in the securities exchange (Efrati, 2011). It also appears from the revenues earned that the market was supporting the deal. Groupons shareholders would have received higher capital gains than they would have realized had the deal not been there. After the deal collapsed Groupon chose to go public and its value fell by 79% to $2.8 billion from the $6 billion Google was offering (Wall Street Journal, 2011). In this case the shareholders of Groupon lost value instead of making capital gains had the deal been sealed with Google.If the acquisition went through Groupons shareholders would also have benefited from the increased market reach of its products since Google has a better marketing infrastructure (Winkler, 2010). The sales revenue of Groupon would have rose to new levels which would have seen Groupons shareholders make phenomenal capital gains. Groupons shareholders seems to have lost more than Googles shareholders since after the deal collapsed Groupons sales fell drastically, In fact in the fourth quarter of 2011 the revenues were restated to $14.3 million which was a six fold drop from the deal year of 2010 (Efrati, 2011). The sudden drop in revenues was because the allure of daily-deal websites which is Groupons core business activity was wearing off among consumers. Groupon is also facing intense competition from the ever increasing number of competitors. Had the deal gone through Groupon would have leveraged the competitive advantage that Google has achieved in the market to grow its revenues. Googles shareholders would have benefited by increasing the value of their shareholding by $6billion dollars (Winkler, 2010). Google shareholders would also increase the number of product lines that Google is currently managing and this would have brought in more returns which would have translated to higher dividend payout at the end of the financial year. In general Googles shareholders will benefit from Groupon acquisition by getting new technology, talented engineers and an increase in revenue base from the new product line. Groupons shareholders will benefit from access of extra capital to support its rapid growth which will enable it achieve its sales growth targets (Efrati, 2011).According to the foregoing analysisthe shares of Google would have risen in the market had the deal gone through. This would have increased the value of Googles shares and enabled the shareholders of the two companies to make huge capital gains. The two companies should conclude the deal since it has positive net present value (NPV) of $281,369.66, which is more than 1 (one). The business venture would bring in positive returns which would grow the asset base of both companies (Efrati, 2011). Google will also benefit by combining a potential competitor and Groupon would benefit by utilising the huge and more popular Googles search engine to increase its sales revenue (Winkler, 2010). There will be synergies that will be generated by the deal which will grow the value of the two companies. Benefits to Googles shareholders would include adding a new product line which would definitely grow Googles sales revenues by a substantial percentage. The other benefit to Google would be that it will add into its existing staff establishment a pool of talented and competent staff mainly drawn from the technical field. Google would also take over all staff member of Groupon which would definitely increase Googles skill base and enhance its competitive position in the market (Winkler, 2010). Google would then leverage this new knowledge for the benefit of existing business and the new business to be brought on board by the acquisition (PR Newswire, 2011).The risk factors in this deal include a possible drop in Groupons revenues due to the customers are fast losing interest in web based deals which is Groupons core business. This could lead to drastic fall in sales revenues which would lead to loss in value. Google would also be entering into unfamiliar business facing intense competition which would likely lead to a fall in revenues instead of rising. Google may therefore be unable to recover the money spent in acquiring Groupon (Efrati, 2011).The other risk is foreign currency risk. Since Groupon generates a large part of its revenues from overseas markets that would increase foreign currency risk. Unexpected and drastic fluctuation in foreign currency exchange rate would seriously affect the revenues from Groupons product line. The other risk is associated with operational challenges in terms of being more efficient than the competition (Efrati, 2011). The other risk is liquidity related. Due to intense competition in Groupons line of business, Googles could lose its money instead of gaining in terms of revenues. The business also faces management risk in that Google did not have management and operational expertise in Groupons business. If top managers of Groupon left then the business operations of the new line of business would most likely be grounded to a halt (http://www.bloomberg.com/news/2012-12-11/buying-groupon-hard-for-anyone-as-growth-slows-real-m-a.html?link=mktw).Advisers vie to take on groupon IPO. (2011, Jan 14). Wall Street Journal (Online). Retrieved from http://search.proquest.com/docview/839609105?accountid=45049Arshad, A. (2012). Net present value is better than internal rate of return. Interdisciplinary Journal of Contemporary Research in Business, 4(8), 211-219. Retrieved from http://search.proquest.com/docview/1282292585?accountid=45049Efrati, A. (2011, Mar 05). Google cranks M&A machine undaunted by valuations, deals chief says will continue to pursue start-ups.. Retrieved from http://search.proquest.com/docview/855035294?accountid=45049Google acquisitions and strategy. (2011, Dec 22). PR Newswire. Retrieved from http://www.bloomberg.com/news/2012-12-11/buying-groupon-hard-for-anyone-as-growth-slows-real-m-a.html?link=mktwWinkler, R. (2010, Dec 01). No groupon discount for google.Wall Street Journal. Retrieved from http://search.proquest.com/docview/814956094?accountid=45049