Law of Hospitality in Odyssey essays

Law of Hospitality in Odyssey articles The Importance of the Law of Hospitality in Homers The Odyssey The Law of Hospitality is an unwritten law where a host can't decline a visitor, regardless of whether it is an exhausted explorer, an aristocrat, or a bum. This law isn't broadly utilized today, if by any means, yet in the hour of Homers The Odyssey, this was viewed as a good and moral code. Nonetheless, there were sure principles that should have been maintained in this understanding. The host couldn't reject a visitor or make him leave; simultaneously, a visitor couldn't abuse or carry on in an in any case unsuitable path toward the others in the hosts house. In a similar regard, a visitor couldn't exceed his greeting in the hosts home. In The Odyssey, this visitor have relationship was appeared in the entirety of its structures all through the book. There are three fundamental structures that the Law of Hospitality can be communicated in. Both the visitor and host can profit, or be unaffected by the visit. Another regular circumstance that can result from a visitor have relationship is that the houseguest can influence the host bad. Likewise, conflictingly, the host can influence the visitor bad. These circumstances were available in The Odyssey in numerous structures. The Law of Hospitality is appeared in what some may see as a strange pair; an individual of low status acknowledges an individual of equivalent if not higher status. Eumaeus is the swineherd who used to work for Odysseus; who has stayed faithful to him in his nonattendance. At the point when Odysseus, (masked as a poor person) goes to his unassuming home, Eumaeus acknowledges him, paying little mind to the way that he is of lesser status. Eumaeus treats him with a similar regard as he would any individual. When Eumaeus sees Odysseys masked as the poor person, just grain enduring his mutts, he doesnt even allow him to talk before saying, Come to the lodge. Youre a drifter to. You should eat something, drink some wine, and reveal to me where you are from and the difficult situations youve... <!

Amys bread case study Essay

Contextual investigation Questions 1. Who are the primary players (name and position)? The fundamental Player in this is Amy Scherber and she is the director and proprietor. Another primary character is Toy Kim Dupree and he is Amy’s associate chief. 2. In what business or organizations and industry or enterprises is the organization working? Amy’s bread is in the matter of selling bread items both discount and retail. They sell basically to top notch eateries, inns and food shops. 3. What are the issues and issues confronting the organization? (Sort them by significance and desperation.) It is difficult to make an enormous benefit in light of the fact that Amy pays her representatives a higher sum then the different business in her field. She likewise needs to worker around four fold the number of representatives to finish a similar activity because of the escalation gave on each cluster of bread. The organization is likewise battling with shrivel to extend or sit tight with their business. 4. What is the essential issue for the organization/association for this situation? The essential issue for this situation is the possibility of extension. The issue is that they don't have the foggiest idea whether they ought to grow or sit tight. On the off chance that they do grow how are they going to unify their business. Are they going to do carefully discount or discount and retail. 5. Why have the issue (s) you refer to developed? Distinguish the causal chain (the occasions or conditions that caused the issue Some will be Internal Weaknesses, others EXTERNAL Threats). This primary issue has happened in light of the fact that they are as of now situated in a retail facade that isn't sufficient to give the necessities of all their potential clients. The primary shortcoming here is that they are in an awful area for headway. In their present area they are finishing the entirety of the requests that they can. 6. What are the attributes of the business that the organization is in and how is the business changing after some time? When Amy’s Bread first open bread heating was a development industry. The U.S Department of Commerce revealed there was a 12 percent expansion in the utilization of claim to fame breads per capita. This industry is likewise difficult to get into there are a lot of company’s that as of now have been working with cafés for quite a while. The other issue with the business is that since it was a development period numerous new pastry specialists were attempting to enter it and win a name for them. So the calculation for clients is high in the business and just developing increasingly serious. 7. What is the firm’s procedure for separation, empowering them to contend inside the setting of their industry? Amy had a reasonable objective she needed to be popular for making an incredible item and for making a decent work environment. Amy’s item itself was diverse on the grounds that she set the best expectations on her quality. They additionally don't utilize any machines in the molding of their bread. Each heap of bread was hand made and molded which was the reason her finance was so high yet it set her breads apart from the normal shop. 8. What are potential answers for the issues you have distinguished? Potential answers for her emergency on where to go or wilt to move at all are one she was unable to move and be fulfilled where she is. The subsequent choice is she could move to a structure that she would have the option to deliver a lot of discount merchandise at and not focus on retail products. The third alternative is she could move to a considerably greater spot where she could sell retail item and still address her issues for discount. 9. What are the points of interest and potential burdens of your solution(s)? In the event that she remains pat, at that point she will have the option to turn a peripheral benefit and address the issues of her present clients. The impediments would be that she would then pass up chance to offer to all the clients that she has on her holding up rundown and her retail business would not be any greater. In subsequent choice they would have the option to meet all her discount needs. The drawbacks would be that she was unable to sell retail clients any more and she would be paying more for the property. In the third alternative she would have the option to sell both retail and discount. She would be in a recently growing retail advertise with access to pedestrian activity. She would likewise have the option to meet all her entire deal needs. To finish it off she would have the option to plan the format of the structure to accommodate her precise needs. The impediments of this are it is extravagant. She would get everything that she is searching for yet at a considerably more significant expense then the other two choices. 10. Are there any potential issues with your proposed suggestions? What possibilities should be obliged? My proposal is pick the third alternative. It is the most costly yet Amy has just exhibited that she has a sharp business disapproved and can manufacture business and advance it. The retail space will help spread the news of how great her bread really is and verbal exchange is the best ad they could have. The most serious issue that they could have is on the off chance that they begin to free clients. A subsequent issue would be if the market starts to move away from the longings of bread. Or then again another issue could be that they essentially don't add enough clients to have the option to manage the cost of the new space. Contextual investigation Analysis Narrative Format Case title: Amy’s Bread Understudy: Nicholas Mustico Date: 3-18-2013 Course: Management Principles Firm Overview and Introduction to the Case (Utilize this and all headings in your story) In this first segment of the account, you will give a short portrayal of the case subject firm and conditions for your peruser. YOU are the master. Your investigation is dependent on the way that you’ve read the case at any rate three For the situation investigation of Amy’s bread you get a total diagram of the organization. It talks about where they began how they began and the experience that the proprietor Amy Scherber has. Amy Scherber is the highlight of the organization she is the organizer, proprietor, administrator, and lead pastry specialist/culinary expert for Amy’s bread. Amy is likewise the principle individual responsible for the company’s funds and business conversations. Amy is currently confronting the issue of shrink or not she will grow her organization. She has had the option to dig in her business in the extreme business of preparing breads. This is a business that is exceptionally completive and difficult to set up yourself in. Since she has becomeâ establish she needs to choose shrink she might want to extend to satisfy consumer’s needs or stay where she is and be content with what she has achieved. Inner points of view (Utilize this and all headings in your story) This area of your account is utilized to disclose to your peruser the inward, authentic data about the case subject association and the issues you’ve recognized. Furthermore, in this area you have to portray the causal chain. How did the issue emerge? What caused it? The issue for this situation would not be an issue if the organization had not gotten as fruitful as it has. On the off chance that the organization had not gotten so well known, at that point the little retail facade that she had initially requested could never have become an issue. They became mainstream however and now they need to change in accordance with what they might want to turn into. Nobody knows whether she had chosen a bigger site on the off chance that she would have ever had the option to make herself go however on the off chance that she had, at that point this issue may never have happened. Her organization presently is at a point where they can't fulfill one extra client because of space choking influences. Amy’s issue is a hard one to settle on however for an organization it is a decent spot to be in the event that you have an excess of potential business. It is in every case better to have a lot of chance then excessively little. * Outside points of view (Utilize this and all headings in your story) In this segment you will depict the qualities of the business wherein the subject association works. Distinguish any progressions after some time, which you accept add to the issues you’ve recognized. Has the Firm’s Strategy for separation inside their industry caused, Added to or exacerbated the issues you’ve recognized? Amy’s bread is in a mind boggling and troublesome industry to work in. She is in a field that has been â€Å"well farmed.† What I mean by that will be that there have just been individuals there doing what she is attempting to do. The business she is attempting to offer to except if they are more up to date then her have all previously set up somebody to satisfy their need. She at that point would need to show these organizations that she is that greatly improved then her calculation that they have as of now employed. Amy’s methodology for separation is fundamentally being better then the calculation. She is endeavoring to have the best, freshest, and most creative bread determination. She had made it a point that she won't penance quality for whatever else including benefit. Amy was fortunate, or sufficiently shrewd to enter the support business when it was on the ascent. Utilization of grains had quite recently started to rise when Amy entered the business. The U.S Department of Commerce detailed there was a 12 percent expansion in the utilization of forte breads per capita. This industry is additionally difficult to get into there are a lot of company’s that as of now have been working with cafés for quite a while. The other issue with the business is that since it was a development period numerous new pastry specialists were attempting to enter it and gain a name for them. So the calculation for clients is high in the business and just developing increasingly serious. This primary issue has happened on the grounds that they are as of now situated in a retail facade that isn't sufficient to give the necessities of all their potential clients. The fundamental shortcoming here is that they are in a terrible area for headway. In their present area they are finishing the entirety of the requests that they can. On the other hand this isn't an issue that most business

Lithium Side Effects - Bipolar Medications

Lithium Side Effects - Bipolar Medications Bipolar Disorder Treatment Medications Print Lithium Side Effects - Bipolar Medications Bipolar Medications Library By Marcia Purse Marcia Purse is a mental health writer and bipolar disorder advocate who brings strong research skills and personal experiences to her writing. Learn about our editorial policy Marcia Purse Medically reviewed by Medically reviewed by Steven Gans, MD on August 05, 2016 Steven Gans, MD is board-certified in psychiatry and is an active supervisor, teacher, and mentor at Massachusetts General Hospital. Learn about our Medical Review Board Steven Gans, MD Updated on June 27, 2019 Bipolar Disorder Overview Symptoms & Diagnosis Causes Treatment Living With In Children Your Rights Getty Images - Harald Theissen Lithium is a drug developed from a naturally occurring element often prescribed as a mood stabilizer for patients with bipolar disorder.?? Lithium is sold under many brand names, including Duralith, Eskalith, Lithobid, Lithotabs, Lithane, Lithizine, and Lithonate. If you are taking lithium, you need to be aware of this medications possible side effects. Side Effects Check with your doctor if any of the following lithium side effects?? continue or are bothersome: More Common: Increased frequency of urination; increased thirst; nausea; trembling of hands (slight)Less Common: Acne or skin rash; bloated feeling or pressure in the stomach; muscle twitching (slight) Signs You Need to Contact Your Doctor Immediately Early symptoms of lithium overdose or toxicity: Diarrhea; drowsiness; loss of appetite; muscle weakness; nausea or vomiting; slurred speech; tremblingLate symptoms of overdose or toxicity: Blurred vision; clumsiness or unsteadiness; confusion; convulsions (seizures); dizziness; trembling (severe) Notify your doctor as soon as possible if you experience any of the following side effects of lithium: Less Common: Fainting; fast or slow heartbeat; irregular pulse; troubled breathing (especially during hard work or exercise); unusual tiredness or weakness; weight gain (may be significant)Rare: Blue color and pain in fingers and toes; coldness of arms and legs; dizziness; eye pain; headache; noises in the ears; vision problemsSigns of Low Thyroid Function:?? Dry, rough skin; hair loss; hoarseness; mental depression; sensitivity to cold; swelling of feet or lower legs; swelling of neck; unusual excitement Symptoms of Lithium-Induced Nephrogenic Diabetes Insipidus Although increased thirst and increased urine output are very common side effects of lithium, its important to tell your doctor if you have them. About 5% of patients on lithium develop lithium-induced NDI?? over time, which can be serious if not treated. Other side effects not listed above may also occur in some patients. If you notice any other side effects, check with your doctor. History Lithium was first used for mental illnesses in the mid-19th century but fell out of favor in the psychiatric world until it was brought back into use to treat mania around 1949.?? It has proven through time and research to be one of the most effective treatments for bipolar disorder in keeping moods stable and mood episodes at bay. There has been renewed interest in the use of lithium recently because of its tolerability and effectiveness. Though it has side effects, these can generally be kept to a minimum by starting with a low dose and gradually increasing to the desired strength. Most side effects go away with treatment and many people stay on low doses of lithium for years with success.   Common Side Effects One notable characteristic of lithium is that it can have obvious side effects when you first start, yet not seem to be helping.?? However, this typically changes with some time, until you no longer experience the side effects, but do experience the mood stability. You should always let your doctor know if side effects dont go away or are distressing. Common side effects include: NauseaVomitingDiarrheaDiscomfort in the abdominal areaTremorsDry mouthIncreased thirstDrowsinessRestlessnessConstipationHair loss Serious Side Effects Rarely, serious side effects can occur.?? If you experience any of the following side effects, be sure to call your doctor right away or get emergency medical attention.   FaintingConfusionHallucinationsSeizuresBlacking outExcessive and/or unusual tiredness or weaknessChest tightnessConfusionSwelling in your ankles, feet or lower legsStrange movements that may be hard to control Ways to Help Alleviate Side Effects In addition to starting with lithium prescribed at a lower dose to begin with, and then raising the dose as tolerable, there are a handful of ways to help keep side effects to a minimum.?? They include: Taking your medication with food to avoid abdominal upset or nauseaUsing an anti-diarrheal medication for a time, until your system adjusts to the lithiumTaking doses throughout the day instead of using an extended-release formSucking on a sugar-free lozenge to relieve dry mouthPotentially having your dose lowered if side effects do not decrease Overdose Symptoms If you or a loved one may have overdosed on lithium,?? be sure to contact your local poison control center and/or 911 right away. Symptoms of overdose may include: Loss of coordinationBlurred visionGiddinessVomitingDiarrheaEars ringingUrinating oftenWeak muscles Notes About Using Lithium You may have to take lithium for several weeks before you notice that it helps. Your doctor can give you some tips and tricks to help you deal with the side effects for those first few weeks until your system adjusts. If you experience side effects that do not go away after a time, talk to your doctor about lowering your dose of lithium. Many patients will still do very well on a lower dose of lithium, and without the side effects.

Universal Health Care System Of Massachusetts Essay

Universal health care coverage is a dream that the majority of Americans have had for many decades. It seemed that the dream could become a reality with a major effort under the Clinton administration in the mid 1990’s. This effort was spearheaded by the First Lady, Hillary Clinton, and would have established a universal health care system for the entire nation. Unfortunately, after years of work, the effort ended in failure due to trying to modernize and finance universal health care at the same time (Rodwin, 2003). When the current President, Barack Obama, campaigned in 2008, one of his cornerstone promises was to develop a healthcare system that would assure affordable healthcare for all Americans through the Affordable Care Act, also known as Obama Care. With only a slight majority of democrats in the Senate and a large majority of Republicans in the House, this would prove to be an uphill battle (Moore, 2014). A large part of the plans core was modeled after the state health care system of Massachusetts. This system designed and initiated health care for all of the citizens of the state. Due to the staunch resistance by republicans and even some democrats, there were many compromises that had to be accepted in order for the act to achieve passage. The centrality of the plan was the idea that if an individual had insurance and preferred it over the available ACA insurance, the individual did not need to change to Obama Care. Those without health care insurance such asShow MoreRelatedThe Massachusetts Of Massachusetts893 Words   |  4 PagesThe Massachusetts Experiment Massachusetts has undergone many changes in their health care system since enacting a universal health care law in 1988. The effects of the Massachusetts health care laws are a good indicator of what people should expect from the enactment of the ACA. 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Specifically it addresses how the 2006 health care reform law sought to increase health insurance coverage for the uninsured, underinsured, children, young adults, and low income residents. Its desire was for universal coverage for all its residents, and that it would be both reasonably priced and of value. The Law addressed need to decrease the barriers to health care, such as racial disparities, and overall health care costs while increasingRead MoreThe Affordable Care Act Of Wyoming1419 Words   |  6 PagesAnalyst Office: POLS 1100-500 Date: September 22, 2014 Subject: The Affordable Care Act This Memo responds to your request for information about the affordable care act. In this memo I will discuss the history of the act, major provisions of the act, and how the act will affect health insurance in the state of Wyoming. I will also address the reaction and impact the act has had on other states in the union. The affordable care act was implemented by the 111th United States congress and signed into lawRead MoreA Great American Hypocrisy1157 Words   |  5 PagesA Great American Hypocrisy One of the great hypocrisies of American culture is found in its health care system. The United States claims in its Declaration of Independence that â€Å"all men are created equal† and that all of these men have the inalienable rights to â€Å"life, liberty, and the pursuit of happiness.† Yet this is the same country that allows over 120 people to die each day because they are uninsured. How can this nation claim that all are created equal and have a right to life when theyRead MorePope Gregory’s America1261 Words   |  6 Pageswe’ve been prescribed a cocktail of healthcare systems that have been depleted our coffers while failing to provide adequate care. Fifteen percent of the American population is uninsured and the cost of healthcare for both the uninsured and the insured is rising at an exorbitant rate, which results in issues from both a health and an economic standpoint. The replacement of our current health care system with a universal system would resolve both our health and economic issues. According to the 2012Read MoreInterview Dr. Marie Hobart Essay1619 Words   |  7 Pagesaddiction and her goal in addition to helping patients one-on-one is to help create a system of care for people who are traditionally not able to access care in other ways (Hobart). Dr. Hobart explained that she always wanted to work in health, and working with people in the community leading her to become a public psychiatrist in the city of Worcester, Massachusetts. As Dr. Hobart works in the Worcester public health sector as both a practicing physician and an administrator, her dual roles createRead MoreThe Patient Protection and Affordable Care Act (PPACA)1660 Words   |  7 Pagesï » ¿The Patient Protection and Affordable Care Act (PPACA) is one of the most substantial reforms in Medicare since 1965. This is now considered the law of the land according to Douglas Holtz-Eaton. The PPACA portrays a â€Å"coverage first† strategy. â€Å"Sadly, a review a of the state’s expe rience bodes poorly for the future of national reform.† (Point/Counterpoint 177) There are two major driving factors in which could propose a threat for this reform. The first factor is it costs too much. Many decadesRead MoreComponents Of A Computer Based Information System1455 Words   |  6 PagesThere are 5 components that must come together in order to produce a Computer-Based Information system are: 1. Hardware: Hardware means the machinery including the computer itself, input and output, storage and communication devices 2.Software: The term software refers to computer programs and the manuals (if any) that support them. Computer programs are machine-readable instructions that direct the circuitry within the hardware parts of the CBIS to function in ways that produce useful informationRead MoreStakeholders in Health Reform1174 Words   |  5 Pagesorganization does and that could affect the healthcare organization† (Olden, 2011). There are many different stakeholders in our case study but we will focus on the main ones. In Massachusetts, the Massachusetts Health Care Reform Act had a considerable impact on hospitals and the health care system. Most community health centers were benefiting from coverage expansions and safety net hospitals were struggling financially due to the fact that the state put more funding towards insurance subsidies

Roles of Female Characters in The Necklace and Life in...

Examine the roles of the female characters in society in ‘The Necklace’ and ‘Life in the Country’ There are three things that make up the society; the time, place and people. In each society each of these points differs from other societies. The stories ‘The Necklace’ and ‘Life in the Country’ by Guy de Maupassant were set in a time in which poverty was very common in most places even though each society had a different view as to what poverty is. This essay is examining the roles of the female characters in ‘The Necklace’ and ‘Life in the Country’ by Guy de Maupassant. Guy de Maupassant came from a wealthy background and lived in France, Normandy. His parents were divorced so he spent the early years of his life mostly with his†¦show more content†¦If she had not gone through that, then she would have never changed, and change is very important. The necklace was fake, although very beautiful, in a way it describes Mathilde, on the outside she was ravishing and beautiful, but in the inside she was completely fake. This story shows how things such as discontentment, envy, and pride could destroy a life. In the story, Madam Loisel is a very envious woman who dreamt of a life she could not have. She was very beautiful and charming but, like the necklace she is a fake. The day her dream came to life, and she as well as her husband were invited to a dinner ball she became distraught and insisted she would not come as she had nothing to wear. This made her husband give her four hundred francs, for a new dress yet she was still not content and was once again distraught at the prospect of having little jewellery to wear. This greed inside her caused her life to destroy around her, but it is good as if this would not have happened she would not have changed for the better. In ‘Life in the country’ the main theme is also greed and Madam Tuvache as well as Vallin saw how dangerous it could be. Madam Tuvache in the end lost her son and Madam Vallin the little respect she had amongst the people not to mention their friendship. Although both stories are about poverty, the poverty described in each story is completely different.Show MoreRelatedAnalysis Of Joseph Conrad s Heart Of Darkness And The Quiet American1581 Words   |  7 PagesEveryone is born under different circumstances, different experiences, and develop different positions. Although gender allows our existence to flourish, females were and are still discriminated against. Similar to those people who experienced the dismantle of their culture and people, imperialism seeks people who are different. They observe the differences of language, culture, and even physical appearances. 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The examination of gender roles and marriage are seen through the following short stories The Story of an Hour, The Necklace, and Country Lovers, along with scholarly articles based on gender role and marriage. Evaluation of these literary works shows quite clearly that social and economicRead MoreEssay about Biography and Work of Guy de Maupassant4591 Words   |  19 Pagesthe second half of the decade. â€Å"His short fiction has been compared to that of Ivan Turgenev, Anton Chekhov, Edgar Allan Poe, and Henry James.† (Encyclopedia Britanica 1012) Maupassant took as his primary goal the realistic portrayal of everyday life. He wrote about what he knew best, and that is as a peasant of his native home of Normandy, the war of 1870, the lives of government employees and Parisian high society, and his own fears and hallucinations. â€Å"His short stories were seen as masterpiecesRead MoreNineteenth Century Gender Roles Exposed in The Necklace and The Story of an Hour2020 Words   |  9 Pages The representation of The Necklace and The story of an hour represents gender roles as defined by the nineteenth century society guidelines . The The Story of an Hour was set in the late nineteenth century in the home of Louise Mallard.(Kate Chopin).It was written on April 19, 1894,by Kate Chopin. The theme Many also focus on women revolt against conformity, often against gender conformity or against social norms that limit omens possibilities in life. (Emmert, Scott ) The storyRead MoreItalian Film and Neorealism2472 Words   |  10 Pagesof partisan hopes for social justice in the post war italian state.† (Marcus, xiv) Even before the war, Italy had been under the dictatorship of Benito Mussolini and his corrupt form of government, Fascism, which caused oppression throughout the country. Neorealistic films allowed filmmakers to use common styles and techniques to finally reveal the world filled with anguish and misery that Mussolini had created. These films allowed the rebirth of Italy with the new ideals of freedom and social orderRead MoreThe Status Of A Woman Essay1846 Words   |  8 PagesSouth Indian or specifically Malayalam Cinema. The first question the arises in my mind while watching any Malayalam movie is why does the nationally and internationally acclaimed Malayalam Cinema fail to represent women’s experiences, Why are The Female leads just subjected to basic chores, or as an object of desire? Me being a Woman fin d it very disturbing to see woman being labelled in the same umbrella. Indian cinema has always been under the line of fire for its potrayal of women as objectsRead MoreThe Things They Carried By Tim O Brien1981 Words   |  8 Pagesis in some ways not only personalizing each man but is also exploring each man’s character with symbolism to real life ideas and feelings to the readers. Symbols are objects, characters, figures, or colors used to represent abstract ideas or concepts. Throughout the book, The Things They Carried, Tim O’Brien uses a lot of symbolism with his character and ideas. For example in the book, O’Brien states that a character named Kiowa carries a Bible. By doing this, O’Brien suggesting that Kiowa is a religiousRead MoreThe Status Of A Woman Essay1935 Words   |  8 PagesMalayalam Cinema. The first question the arises in my mind while watching any Malayalam movie is why does the nationally and internationally acclaimed Malayalam or for that matter any South Indian Cinema fail to represent women’s experiences, Why are The Female leads just subjected to basic chores, or as an object of desire? Me being a Woman find it very disturbing to see woman being labelled in the same umbrella. Indian cinema has always been under the line of fire for its potrayal of women as objectsRead MoreThe Roles of Women in Medieval Scandinavia Essay4028 Words   |  17 Pagesof infanticide - particularly female infanticide, women’s role in creation of the realm’s currency, and even the pagan religion that so many cite as evidence of a male-centric war society gives us evidence of the many women who were able to attain both societal and familial power in Scandinavia. Female infanticide was a common practice throughout the medieval world and while on one hand this is evidence of misogyny, on the other hand it is empowering to those females who do manage to make it to adulthood

Globalizing the Cost of Capital and Capital Budgeting at Aes Free Essays

string(44) " portfolio of contract generation projects\." Globalizing the Cost of Capital and Capital Budgeting at AES In June 2003, Rob Venerus, director of the newly created Corporate Analysis Planning group at The AES Corporation, thumbed through the five-inch stack of financial results from subsidiaries and considered the breadth and scale of AES. In the 12 years since it had gone public, AES had become a leading independent supplier of electricity in the world with more than $33 billion in assets stretched across 30 countries and 5 continents.Venerus now faced the daunting task of creating a methodology for calculating costs of capital for valuation and capital budgeting at AES businesses in diverse locations around the world. We will write a custom essay sample on Globalizing the Cost of Capital and Capital Budgeting at Aes or any similar topic only for you Order Now He would need more than his considerable daily dose of caffeine to point himself in the right direction. Much of AES’s expansion had taken place in developing markets where the unmet demand for energy far exceeded that of more developed countries. By 2000, the majority of AES revenues came from overseas operations; approximately one-third came from South America alone.Once a critical element in its recipe for success, the company’s international exposure hurt AES during the global economic downturn that began in late 2000. A confluence of factors including the devaluation of key South American currencies, adverse changes in energy regulatory environments, and declines in energy commodity prices conspired to weaken cash flow at AES subsidiaries and hinder the company’s ability to service subsidiary and parent-level debt.As earnings and cash distributions to the parent started to deteriorate, AES stock collapsed and its market capitalization fell nearly 95% from $ 28 billion in December 2000 to $1. 6 billion just two years later. As one part of its response to the financial crisis, AES leadership created the Corporate Analysis Planning group in order to address current and future strategic and financial challenges. To begin the process, the CEO and board of directors asked Venerus, as director of the new group, to revalue the company’s existing assets, which required creating a new method of calculating the cost of capital for AES businesses.Central to the questions facing Venerus was the international scope of AES, as he explained: â€Å"As a global company with operations in countries that are hugely different from the U. S. , we need a more sophisticated way to think about risk and our cost of capital around the world. And, frankly, the finance textbooks aren’t that helpful on this subject. † The mandate from the board of AES to create a new methodology presented an interesting but overwhelming challenge. As he prepared his materials for the board, Venerus wondered if his new approach would balance the complexities of the unique business situations around the world with ____________________________________________________________ ____________________________________________________ Professor Mihir Desai and Research Associate Doug Schillinger prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.Copyright  © 2004 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www. hbsp. harvard. edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 204-109 Globalizing the Cost of Capital and Capital Budgeting at AES he need for a simple, straightforward process that could be implemented accurately and consistently throughout the organization. AES Corporation1 Roger Sant (MBA ’60, HBS) and Dennis Bakke (MBA ’70, HBS) founded AES Corporation (originally Applied Energy Services) in 1981 shortly after the adoption of federal legislation that became known as the Public Utility Regulatory Policy Act (PURPA). The legislation was part of the United States government’s reaction to growing concern over American dependence on foreign oil.The act sought to diminish this dependence by requiring that electric utilities source some of their new power needs through qualified cogenerators and small independent power producers, provided that the power generated by independents cost less than if the utility were to produce the power itself. Sant and Bakke recognized that in shielding small independent power producers from costly state and federal regulation, PURPA actually created a market for a new private sector power market. In practice, the act almost ensured that independent power producers could undercut a utility’s cost of production. The company initially struggled to raise financing but after the construction of its first cogeneration facility in Houston, Texas, in 1983 and the subsequent development of a profitable cogeneration facility in Pittsburgh, Pennsylvania, in 1985, AES experienced rapid growth. By the time the company went public in 1991, revenues had grown to $330 million and net income had soared to $42. million from $1. 6 million just three years earlier. In the early 1990s, AES began to shift its focus overseas where there were more abundant opportunities for the company to apply its nonrecourse, project finance model to the development of contracted generating facilities. In addition, foreign governments often provided incentives to attract foreign direct investment in infrastructure projects like power plants. The willingness of international development banks to invest alongside AES in volatile parts of the world helped mitigate the risk of expropriation, and the increased breadth of the global financial markets provided greater access to capital. AES initiated its international expansion in 1991–1992 with the purchase of two plants in Northern Ireland. The following year, AES began what would become a massive expansion into Latin America with the acquisition of the San Nicolas generation facility in Buenos Aires, Argentina.A year later, AES created a separately listed subsidiary, AES China Generating Co. , to advance Chinese development projects. As the pace of deregulation quickened around the world, AES was presented with an abundant supply of capital and a wealth of opportunities for investments in energy-related businesses, some of which were more complex than AES’ portfolio of contract generation projects. You read "Globalizing the Cost of Capital and Capital Budgeting at Aes" in category "Papers" In addition to expanding its line of business profile, it continued its geographic expansion and between 1996 and 1998 the company acquired several large utility companies in Brazil, El Salvador, and Argentina. By this time the company was spending an estimated 80%–85% of its capital investment overseas in places as diverse as Australia, Bangladesh, Canada, Cameroon, The Dominican Republic, Georgia, Hungary, India, Kazakhstan, the Netherlands, Mexico, Pakistan, Panama, Puerto Rico, Ukraine, The United Kingdom, and Venezuela. 2 1 Much of this overview comes from Paula Kepos, ed. , International Directories of Company Histories, Volume 10 (Detroit: St. James Press, 1995), pp. 25–27. 2 Paula Kepos, ed. , International Directories of Company Histories, Volume 53. (Detroit: St. James Press, 1995), p. 17. 2Globalizing the Cost of Capital and Capital Budgeting at AES 204-109 AES in 2002 By 2002, AES was one of the largest independent power producers in the world. (See Exhibits 1, 2, and 3 for AES consolidated financial statements. ) The company was organized around four separate lines of business: Contract Generation, Competitive Supply, Large Utilities, and Growth Distribution. 3 Contract generation In 2002, AES’s Contract Generation business accounted for approximately 29% of AES revenues and consisted of generation facilities, which sold electricity under long-term (five years or longer) contracts. The term of the contracts allowed AES to limit its exposure to volatility in electricity prices. The resulting stable production requirements enabled AES to accurately predict supply needs and enter into similarly long-term agreements for coal, natural gas, and fuel oil, thereby limiting its exposure to fuel price volatility. Facilities varied considerably in size, with plants as small as the 26 MW Xiangci-Cili hydro plant in China to the enormous 10-plant 2,650 MW Tiete hydro complex in Brazil. Competitive supply Accounting for 21% of AES revenues, the Competitive Supply line of business old electricity directly to wholesale and retail customers in competitive markets using shorter-term contracts or daily spot prices. Competitive Supply businesses, sometimes called â€Å"merchant plants,† were highly susceptible to changes in the price of electricity, natural gas, coal, oil and other raw materials. AES’s margin in U. S. dollars was influenced by a host of factors including weather conditions, competition, changes in market regulations, interest rate and foreign exchange fluctuations, and availability and price of emissions credits.Such price volatility had recently damaged several Competitive Supply businesses including the Drax plant in the U. K. , the largest plant in AES’s Competitive Supply fleet. 4 Large utilities By the end of 2002, the Large Utility business included only three major utilities, each in a different country: Indiana Power and Light Company in the U. S. (IPALCO), Eletropaulo Metropolitana Electricidade de Sao Paulo S. A. in Brazil (Eletropaulo), and C. A. La Electricidad de Caracas in Venezuela (EDC). These utilities combined generation, transmission and distribution capabilities and were subject to local government regulation and price setting.All three enjoyed regional monopolies and in total accounted for 36% of AES revenues. U. S. energy regulations had required AES to sell a fourth such company, Central Indiana Light and Power (CILCORP), when AES purchased IPALCO, a sale that was completed near the end of 2002. Growth distribution Growth Distribution businesses offered AES significant potential growth due to their location in developing markets where the demand for electricity was expected to grow at considerably faster rates than in developed countries.However, these businesses also faced notable risks related to operating difficulties, less stable governments, and regulatory regimes, and differing cultural norms regarding basic principles such as payment conventions and safety regulations. Two new Growth Distribution businesses in Ukraine (Kievoblenergo and Rivoblenergo) and one in Cameroon (SONEL) were acquired as recently as 2001. 3 The description for these lines of businesses comes largely from AES’s annual reports; see AES Corporation, 2001 Annual Report (Arlington: AES Corporation, 2002) an d AES Corporation, 2002 Annual Report (Arlington: AES Corporation, 2003). Energy companies typically refer to generation companies not as members of a â€Å"portfolio† but members of a â€Å"fleet. † 3 204-109 Globalizing the Cost of Capital and Capital Budgeting at AES Recent Difficulties AES’s placement in foreign markets as well as poor performance at several new U. S. businesses nearly crippled the company during the global economic slowdown that began in 2001. AES’s market value started to fall slowly in 2001 but fell precipitously in 2002. Having traded for more than $70 per share in October 2000, AES stock hovered around $1 per share in the same month of 2002 (see Exhibit 4).Wall Street began to question the company’s ability to weather the storm, and one analyst wrote, â€Å"It is clear that AES’s current stock price is reflecting the scenario that the company will not survive. †5 The collapse of the stock price and the subsequent $3. 5 billion loss that included a substantial write-off in 2002 were brought on by several factors, the effect of which was amplified by AES’s capital structure. Among these factors were adverse shifts in foreign exchange markets, regulatory policies, and commodity prices; many of these were factors AES could not fully protect itself against.Currency Devaluations During 2001, a political and economic crisis in Argentina brought about a significant devaluation of most South American currencies against the U. S. dollar. In December, the newly elected government abandoned the country’s fixed dollar-to-Argentine-peso exchange rate (1:1) and converted U. S. dollar-denominated loans into pesos. On its first day of trading as a floating currency, the peso lost 40% of its value against the U. S. dollar. 6 By the end of the year, the peso was trading at a rate of 3. 32 pesos to the U. S. dollar and had been as high as 3. pesos. 7 The currencies in Brazil and Venezuela—equally important markets for AES—followed suit, with the Brazilian Real and the Venezuelan Bolivar each depreciating approximately 50% against the U. S. dollar during the same period (see Exhibit 5). As a result, AES recorded foreign currency transaction losses of $456 million in 2002. Several of AES’s subsidiaries in South America defaulted on their debt and were forced to restructure. The debt was nonrecourse to the parent, AES Corporation, so AES was not obligated to service the subsidiary debt.However, the parent company did suffer from cash flow shortfalls as a result of lower-than-expected dividends back from the subsidiaries. The impact of devaluation was increased when foreign businesses were paid in local currency but had obligations to repay debt denominated in U. S. dollars. Adverse Regulatory Changes During the late 1990s, the regulatory agencies in Brazil had failed to produce a market structure sufficiently attractive to encourage domestic construction of new generation assets. Demand exceeded supply, causing shortages. The majority of Brazil’s generation capacity was hydroelectric, and energy deficiencies were exacerbated in 2001 and 2002 by below-average rainfall. In response, the Brazilian regulatory authorities began rationing energy consumption in June 2001. 8 In addition to the loss of sales volume, the decline of the Brazilian real against the dollar triggered a regulatory 5 Ali Agha and Ed Yuen, Banc of America Securities, â€Å"AES Corporation, Analysis of Sales and Earnings,† October 25, 2002, available from The Investext Group, http://www. nvestext. com, accessed July 15, 2003. 6 â€Å"Argentina’s Peso I Expected to Face Pressure This Week,† The Wall Street Journal, January 14, 2002, available from Factiva, http://www. factiva. com, accessed July 7, 2003. 7 AES Corporation, 2002 Annual Report (Arlington: AES Corporation, 2003), p. 38. 8 Ibid. , p. 20. 4 Globalizing the Cost of Capital and Capital Budgeting at AES 204-109 conflict concerning the applicable exchange rate for the real-to-dollar energy-cost pass-through provisions in AES’s contract. In effect, the government of Brazil required AES to purchase energy in dollars while reimbursing the costs using an earlier period exchange rate, which lagged the deflation. In the fourth quarter of 2002, AES took a pretax impairment charge of approximately $756 million on Eletropaulo, one of its major Brazilian businesses. Commodity Prices Decline A 2001 change in the regulatory regime in the U. K. also adversely impacted AES by increasing competition and reducing prices in its generation markets. That, along with an unusually warm winter in the U. K. brought wholesale electricity prices down approximately 30%. 9 These pressures caused several counterparties to default on their long-term purchase agreements. This counterpart risk, coupled with changes in the commodity markets, enhanced the financial pressure on AES facilities, and those that could not sell electricity above their marginal costs were taken off-line or shut down. Above and beyond the currency and regulatory difficulties at AES, the company was forced to take significant impairment charges on unprofitable or discontinued businesses.In 2002, the company took after-tax charges of $465 million on development and construction projects, $301 million on discontinued operations, and a massive $2. 3 billion in asset impairments associated with several large utility and generation businesses. 10 AES Reaction In response to the financial crisis, AES successfully refinanced $2. 1 billion of bank loans and debt securities. The refinancing arrangement came through the day before AES was to pay down $380 million of its outstanding debt. A group of 63 banks and investment funds agreed to provide $1. billion in new loans, and AES secured a two-year extension on another $500 million in notes due in 2002. 11 AES also secured agreements to sell a number of its assets. Total proceeds from the sales were expected to be approximately $819 million. Proceeds from sales in 2003 were expected to be approximately $310 million. 12 Capital Budgeting at AES Historically, capital budgeting at AES was fairly straightforward. When AES undertook primarily domestic contract generation projects where the risk of changes to input and output prices was minimal, a project finance framework was employed.Venerus explained that this framework consisted of a fairly simple set of rules—all nonrecourse debt was deemed good, the economics of a given project were evaluated at an equity discount rate for the dividends from the project, all 9 AES Corporation, 2002 Annual Report, p. 21. 10 Ibid. , p. 37. Eletropaulo. The $2. 3 billion in asset impairment charges included the $706 million after tax impairment charge at 11 â€Å"AES Stock Shoots Up as Refinancing Keeps Bankruptcy at Bay,† The Washington Post, December 17, 2002, available from Factiva, http://www. factiva. om, accessed July 17, 2003. 12 AES Corporation, 2002 Annual Report, p. 36. 5 204-109 Globalizing the Cost of Capital and Capital Budgeting at AES dividend flows were considered equally risky, and a 12% discount rate was used for all projects. In a world of domestic contract-generation projects where most risks could be hedged and businesses had similar capital structures, Venerus felt that this model worked fairly well. Beginning in the early 1990s, with AES’s international expansions, this model of capital budgeting was exported to projects overseas.Early on, the model worked well (as it had with the initial expansion in Northern Ireland), because this project had many of the characteristics of domestic opportunities. Venerus explained that the model became increasingly strained with the expansions in Brazil and Argentina because hedging key exposures such as regulatory or currency risk was not feasible. In addition, the financial structure of a going-concern business like a utility is notably different than that of a limited-lifespan asset like a generating facility. Nonetheless, in the absence of an academic or other alternative, the basic methodology remained intact. Another factor that created fundamental difficulties for transporting this model to overseas settings was the ever-increasing complexity in the financing of international operations. As one example of this, Venerus described how international operations would be evaluated and financed. Exhibit 6 illustrates the typical structure: subsidiary A and B were financed with debt that was nonrecourse to the parent. The subsidiaries’ creditors had claims on the hard assets at the power plants but not on any other AES affiliate or subsidiary.The local holding company, which often represented multiple subsidiaries, also borrowed to finance construction or acquisitions and received equity in the various subsidiaries it held. In addition, the holding company had debt that was nonrecourse to the parent, secured by dividends from the operating company. Finally, AES borrowed once again at the parent level in order to contribute equity dollars into holding companies and subsidiary projects. At the end of 2002, AES had $5. 8 billion in parent company (recourse) debt and $14. 2 billion in nonrecourse debt.Using this subsidiary structure, the parent company received cash flows in the form of dividends from each subsidiary (some of which were holding companies) and, because the structure of every investment opportunity was essentially the same, all dividend flows were evaluated at the same 12% discount rate. This had the benefit of making similar projects seemingly comparable. However, when subsidiaries’ local currency real exchange rates depreciated, leverage at the subsidiary and holding company level effectively increased, and the subsidiaries struggled to service their foreign currency debt.Venerus recalled how the model started to crumble in early international investments: Imagine a real devaluation of 50%. That cuts EBITDA in dollar terms by 50% and coverage ratios deteriorate by more than 50%. The local holding company cannot service its borrowing, and dividends to the parent are slashed. Ultimately the consolidated leverage was well over 80% without any hedging of foreign exchange for any meaningful duration; this is where the model broke down. Venerus’s solution to the problem had to be consistent, transparent, and accessible. He knew his olution would have to account for changes in required returns due to leverage, incorporate some understanding of a project’s risk profile, potentially include country risks, and still provide values that were consistent with market behavior, including trading multiples. Globalizing the Cost of Capital To overhaul the capital budgeting process and evaluate each investment as a distinct opportunity with unique risks, Venerus knew he would have to calculate a cost of capital for each of the many diverse AES businesses. As a starting poi nt, he considered the 15 representative projects shown in 6Globalizing the Cost of Capital and Capital Budgeting at AES 204-109 Exhibit 7a and, using the financial data in Exhibit 7b, he endeavored to derive a weighted average cost of capital (WACC) for each project using a standard methodology: WACC = E D re + rd (1 ? ? ) V V In order to calculate each WACC, Venerus knew he would have to measure all of the constituent parts for the 15 projects: the cost of debt, the target capital structure, the local country tax rates, and an appropriate cost of equity. In order to find the cost of equity, he would first have to estimate a reasonable equity beta.Venerus questioned whether the traditional CAPM model could help him calculate all of the necessary ingredients for AES businesses in emerging markets. He did not advocate the use of a â€Å"World CAPM† where beta measured the covariance of a project’s return to the world market portfolio of equities. AES owned businesses in poorly integrated capital markets, so Venerus feared the use of a World CAPM might yield artificially low costs of capital due to the low (or in some cases negative) correlation of developing economies with the world market.For example, a world CAPM might generate the unreasonable result of a WACC lower than the U. S. risk-free rate due to its negative correlation with the world market portfolio. Similarly, Venerus did not advocate the use of a â€Å"Local CAPM† where beta measured the covariance of a project’s returns with a portfolio of local equities. Countries such as Tanzania or Georgia, where AES had projects, did not have any meaningful equity markets or local benchmarks. Still, he knew he had to find a way to capture the country-specific risks in foreign markets.At a high level, Venerus developed an approach with two parts. First, he calculated a cost of debt and cost of equity for each of the 15 projects using U. S. market data. Second, he added the difference between the yield on local government bonds and the yield on corresponding U. S. Treasury bonds to both the cost of debt and the cost of equity. Venerus believed that this difference or â€Å"sovereign spread† approximated the incremental borrowing costs (and market risk) in the local country. Exhibit 8 summarizes Venerus’s approach.Calculating the Cost of Equity and the Cost of Debt To estimate an equity beta for each project, Venerus first had the Corporate Analysis Planning group take unlevered equity betas from comparable U. S. companies. They averaged the betas to yield one unlevered beta for each of the four lines of business. Since the equity betas reflected not only the market risk associated with each company, but also the differential effects of leverage, the group relevered the equity betas at indicative capital structures for each of the 15 projects using the following equation: levered = ? unlevered E V Using the relevered equity betas, Venerus had the group calculate the cost of equity for each project using the traditional CAPM equation: Cost of Equity = r f + ? rm ? r f ( ) 7 204-109 Globalizing the Cost of Capital and Capital Budgeting at AES Finally, an appropriate cost of debt needed to be calculated. Given the significant regulatory and market changes impacting AES over the previous two years, Venerus decided not to use the historical cost of debt which might reflect market conditions that no longer existed.Instead, he attempted to estimate the return on debt demanded by investors given the cash flow risks of a given project. To do so, he applied the following equation: Cost of Debt = r f + Default Spread The estimation of â€Å"default spread† was based upon the observed relationship between EBIT coverage ratios for comparable energy companies and their cost of debt (shown in Exhibits 9a and 9b). The group estimated the appropriate EBIT coverage ratio for each project given its volatility of cash flows and leverage. Then, using the observed relationship, they assigned the commensurate cost of debt.For example, a project with a target EBIT coverage ratio of 3. 0x was assigned a default spread of approximately 300 bp. Adding the Sovereign Spread13 Before plugging the cost of equity and cost of debt into the WACC equation, Venerus wanted to account for country-specific market risk. He believed that risk could be captured in the difference between local government bond yields and the corresponding U. S. Treasury yields, or the â€Å"sovereign spread. † Thus, he added the spreads found in Exhibit 10 to both the cost of equity and cost of debt and used those values to generate a WACC for each project.WACC Adjustments for Unsystematic Risk Venerus knew the above CAPM-based sovereign spread approach could provide AES with a useful WACC reflecting the systematic risk associated with each project according to its local market. However, was the approach reasonable in developing markets where access to capital was limited and information was less than perfect? Venerus believed that company-specific risk could not be easily diversified away in such markets. Moreover, AES—as an â€Å"investor† looking for potential projects—could not diversify in the same way a portfolio manager might diversify.Perhaps most importantly, Venerus was concerned that calculating expected cash flows by a probability-weighted average of various outcomes would be extremely difficult, if not impossible, to do accurately or consistently across the entire AES portfolio, even without the urgency of his present task. He felt budgeted cash flows would be more readily available. Thus, he believed the appropriate discount rate for AES businesses should account for some level of project-specific risk. Even if expected cash flows were available, Venerus felt that some degree of project-specific risk deserved consideration.Venerus illustrated his point with an example: Consider two hydro plants in Brazil that are identical in every respect except the hydrological risk of the rivers that feed them. Both plants have the same probability-weighted expected value cash flows. The hydrology of plant #1 produces cash flows that can vary by plus or minus 50% in a given year. The hydrology of plant #2 produces cash flows that can vary by plus or minus 10% in a given year. If both these plants are financed with 100% equity and pay no taxes, CAPM tells us that these plants are worth the same amount.That, to me, is unconvincing. 13 Also referred to as the â€Å"country spread model† or the â€Å"Goldman Model. † See Jorge O. Mariscal and Rafaelina M. Lee, Goldman Sachs, â€Å"The Valuation of Mexican Stocks: An Extension of the Capital Asset Pricing Model,† 1993. 8 Globalizing the Cost of Capital and Capital Budgeting at AES 204-109 In order to compensate for this â€Å"undiversifiable project-specific risk,† the Corporate Analysis Planning group created a risk scoring system designed to supplement the initial cost of capital. First, seven categories of project-level risk were identified.Each category was ranked and weighted according to AES’s ability to anticipate and mitigate certain risks. For example, because AES was unable to hedge changes in currencies in certain markets, â€Å"currency risk† received a high weight and rank. In contrast, AES felt it could control for most technical or plant-related problems and, as such, â€Å"operational risks† received a relatively low weight. See Exhibit 11 for the seven risks and examples for each. Second, projects were graded on their level of exposure to the seven categories of project risk.For each category, a project was assigned a grade between 0 (lowest exposure) and 3 (highest exposure). Next, the grades were multiplied by the respective weights and the seven categories added together to yield a single business-specific risk score. For example, Table A shows how the Lal Pir project, a contract generation business in Pakistan, might be assigned grades that translated into a businessspecific risk score of 1. 41. Table A Risk Score Calculation for Lal Pir Project Grade for Lal Pir 1 1 2 0 1 2 2 Risk Scores (grade x weight) 0. 035 0. 070 0. 210 0. 00 0. 180 0. 430 0. 500 1. 425 Categories of Risk Operational/Technical Counterparty Credit/Performance Regulatory Construction Commodity Currency Contractual Enforcement/Legal Sum of individual scores = business-specific risk score Source: Company document (actual assessments disguised). Weight 3. 5% 7. 0% 10. 5% 14. 5% 18. 0% 21. 5% 25. 0% Finally, the business-specific risk scores were used to calculate an adjustment to the initial cost of capital. The lowest business-specific risk scores (score = 0) received no adjustment to the calculated cost of capital.For projects with the highest business-specific risk scores (score = 3), the cost of capital was increased by 1500 bp. The relationships between business-specific risk scores and adjustments to the cost of capital were linear. Thus, a business-specific risk score of 2 would yield an adjustment to WACC of 1000 bp, and a business-specific risk score of 1 would yield an adjustment of 500 bp. 14 Preparing for the Board Venerus reviewed his methodology and considered the mandate he had received from the board. In order to refine the capital budgeting process at AES, he ad to devise a coherent and practical way to define cost of capital in all of AES’s international markets. In his own mind, he went over the steps 14 AES also considered a more complicated non-linear algorithm to generate the WACC adjustment from the business-specific risk score. 9 204-109 Globalizing the Cost of Capital and Capital Budgeting at AES in his process: calculate the cost of equity and the cost of debt using U. S. market data, add the sovereign spread to each, calculate WACC using a target capital structure, and finally, add a business- specific risk adjustment to WACC. Still, questions lingered in his mind. He reviewed the project cash flows for the AES Lal Pir contract generation plant in Pakistan presented in Exhibit 12 as a way of gauging the effect of his new methodology. In doing so, he considered the differences in value created by each of the adjustments to the discount rate. Was his discount rate an actual representation of the risk associated with the project? Did it yield the correct value? More generally, did the sovereign spreads accurately capture the market risk specific to a given country?Had he used the appropriate risk categories and suitable weights to reflect AES’s appetite for risk? It was time for him to decide. Should he move forward with the addition of the business-specific risk score or should he simply use the traditional sovereign spread model? The board’s reaction was impossible to predict. What if the results were inconsistent with observable trading multiples? Would they accuse him of creating an over-com plicated method, or would they applaud the new technique as a pragmatic way to calculate the cost of capital in an international context? 0 Globalizing the Cost of Capital and Capital Budgeting at AES 204-109 Exhibit 1 AES Consolidated Income Statement 2002 $4,317 4,315 8,632 (3,627) (3,086) (6,713) (112) (2,031) 312 219 (87) (1,600) (612) (456) (203) (2,651) (27) (34) (2,590) (573) (3,163) (346) $(3,509) 2001 $3,255 4,390 7,645 (2,416) (3,052) (5,468) (120) (131) (1,575) 189 116 (65) 18 (30) 176 755 206 103 446 (173) 273 $273 2000 $2,661 3,545 6,206 (2,093) (2,210) (4,303) (82) (79) (1,262) 201 51 (52) 143 (4) 475 1,294 368 120 806 (11) 795 $795Amounts in millions except per share figures Revenues Regulated Non-regulated Total revenues Cost of sales Regulated Non-regulated Total cost of sales SGA expenses Severance and transaction costs Interest expense Interest income Other income Other expense (Loss) gain on sale of investments and asset impairment expense Goodwill impairment exp ense Foreign currency transaction loss Equity in pre-tax (loss) earnings of affiliates (Loss) income before income taxes and minority interest Income tax (benefit) expense Minority interest (income expense) (Loss) income from continuing operations Loss from operations of dicontinued businesses (net of income tax benefit of $90, $10 and $5, respectively) (Loss) income before cumulative effect of accounting change Cumulative effect of change in accounting principle (net of income tax benefit of $72) Net (loss) income BASIC (LOSS) EARNINGS PER SHARE (Loss) income from continuing operations Discontinued operations Cumulative effect of accounting change Basic (loss) earnings per share Source: $(4. 81) $(1. 05) $(0. 65) $(6. 51) $0. 84 $(0. 32) $$0. 52 $1. 67 $(0. 01) $$1. 66 AES Corporation, 2002 Annual Report (Arlington: AES Corporation, 2003). 11 204-109 Globalizing the Cost of Capital and Capital Budgeting at AES Exhibit 2 AES Consolidated Balance Sheet 002 $780 211 1,264 384 218 1,492 4,349 194 23,050 (4,204) 18,846 1,403 8,984 33,776 2001 $802 215 1,137 468 215 1,855 4,692 3,031 21,127 (3,015) 18,112 2,433 8,544 36,812 2000 $950 1,297 1,566 569 1,193 209 5,784 3,122 21,874 (2,632) 19,242 2,248 2,642 33,038 1999 $669 164 936 307 327 184 2,587 1,575 14,210 (763) 13,447 1,904 1,367 20,880 1998 $491 35 383 119 155 71 1,254 1,933 6,029 (525) 5,504 1,490 600 10,781 Amounts in millions, as of December 31 ASSETS Cash Equivalents Other Short-Term Investments Accounts Receivable Inventory Prepayments Advances Other Current Assets Total Current Assets Long-Term Investments Property Plant Equipment Accum Depr. Amort. Property Plant Equipment, Net Goodwill/Intangibles Other Long-Term Assets Total Assets LIABILITIES SHAREHOLDERS’ EQUITY Accounts Payable Short-Term Debt Curr.Long-Term Debt and CLOs Other Current Liabilities Total Current Liabilities Long-Term Debt Total Long-Term Debt Deferred Taxes Other Long-Term Liabilities Total Liabilities Stockholder’s Equity Common Stock Additional Paid in Capital Retained Earnings Treasury Stock Other Equity Total Shareholders’ Equity Total Liabilities + Shareholders’ Equity Shares Outstanding Source: â€Å"AES Annual Balance Sheet,† http://www. onesource. com. December 1,139 3,341 2,031 6,511 17,684 17,684 981 8,941 34,117 727 2,449 1,752 4,928 17,406 17,406 627 8,312 31,273 743 2,462 1,834 5,039 17,382 17,382 1,863 3,212 27,496 381 1,216 973 2,570 12,136 12,136 1,787 1,750 18,243 215 1,413 348 1,976 5,791 5,791 268 952 8,987 6 5,312 (700) (4,959) (341) 33,776 558 2003, 5 5,225 2,809 (2,500) 5,539 36,812 533 available from 5 5,172 2,551 (507) (1,679) 5,542 33,038 509 OneSource 4 2,615 1,120 (1,102) 2,637 20,880 414 1,243 892 (343) 1,794 10,781 361 Services, Information 12 Globalizing the Cost of Capital and Capital Budgeting at AES 204-109 Exhibit 3 AES 2002 Revenues by Line of Business and Geographic Region Line of Business $1,180 $3,137 Large Utilities $1,837 Contract Generation Competitive Power Supply Growth Distribution $2,478 Geographic Region $1,568 $2,783 South America North America Europe/Africa $1,739 Carribean $2,091 Source: AES Corporation, 2002 Annual Report. 13 204-109 Globalizing the Cost of Capital and Capital Budgeti ng at AES Exhibit 4 AES Stock Price History, March 1996 through December 2002 $80. 00 $70. 00 $60. 00 $50. 00 $40. 00 $30. 00 20. 00 $10. 00 $12/1/96 12/1/97 12/1/98 12/1/99 12/1/00 12/1/01 12/1/02 3/1/96 6/1/96 9/1/96 3/1/97 6/1/97 9/1/97 3/1/98 6/1/98 9/1/98 3/1/99 6/1/99 9/1/99 3/1/00 6/1/00 9/1/00 3/1/01 6/1/01 9/1/01 3/1/02 6/1/02 9/1/02 Source: Note: Created by casewriter. Stock prices adjusted for splits. 14 Globalizing the Cost of Capital and Capital Budgeting at AES 204-109 Exhibit 5 Selected South American Exchange Rates (2001–2002) (local currency per U. S. dollar) 4. 0 3. 5 3. 0 2. 5 2. 0 1. 5 1. 0 0. 5 Jan-01 May-01 Brazilian Real (left) Source: Bloomberg LP. 1,600 1,400 1,200 1,000 800 600 400 200 Sep-01 Jan-02 May-02 Sep-02 Venezuelan Bolivar (right)Argentine Peso (left) 15 204-109 -16- Exhibit 6 Typical Structure of an AES Investment AES Parent Corporation Assets Liabilities US Bank Debt Equity subsidiary Equity holding co. Corporate Debt Local AES Holding Company Assets Liabilities $-denominated debt Equity subsidiary (non-recourse to parent) AES Subsidiary A Assets Liabilities Fossil fuel power plant $-denominated debt (non-recourse to parent) AES Subsidiary B Assets Liabilities Hyrdo power plant $-denominated debt (non-recourse to parent) Source: Company documents and casewriter analysis. 204-109 -17- Exhibit 7a Risk Scores AES Project Data Line of Project Description Spread 3. 57% 8. 3% 3 3 Spread 300 MW gas fired combined cycle plant currently under construction 30 km east of Santo Domingo 123 MW hydroelectric power plant located on the San Juan river in western Arg entina Largest coal-fired power station in western Europe. It can produce enough electricity – about 4000 MW- to meet the needs of approximately four million people Distribution company that serves a population of 14 million in Sao Paulo 277 MW fossil fuel plant located in Tocopilla, 1500 km north of Santiago 360 MW gas turbine facility located 25 kilometers southeast of Dhaka, capital of Bangladesh 600 MW coal fired power plant 337 MW coal fired power plant 210 MW Oil-fired facility supplying the capital city of Santo Domingo Joint Venture with the Government of Orissa. Two 210 MW P. C. oal-fired units Oil fired 140 MW cogeneration facility – under contracts of up to 10 years, electricity, steam, compressed air, dematerialized water and nitrogen to three chemical facilities adjacent to the plant 832 MW natural gas-fired plant Distribution Company serving 380,000 customers Distribution Company serving Tbilisi, the capital of Georgia. 600 MW gas-fired combined cycle power plant 7. 9% 25. 0% 23% 35. 1% 28. 7% 25% 32. 9% 0. 0% 33. 3% 2. 5x 17. 0% 35. 2% 2. 5x 4. 34% 34. 0% 30. 0% 3. 5x 2. 89% 0. 0% 29. 5% 3. 0x 3. 57% 0. 00% 35. 0% 40. 8% 3. 0x 3. 57% 16. 25% 3 25. 0% 35. 1% 3. 0x Tax Rate Debt to Cap. Coverage EBIT Default Sovereign Construction Operation/ Technical Regulatory Currency Counterparty Contract enf. / Legal 3 3 3 3 2 2 2 2 2 2 3 3 1 3 1 1 1 1 1 1 2 2 1 2 2 1 2 3 3 3 3 3 2 3 2 1 3 3 1 2 1 3 3 3 3 3 3 2 3 Andres Dominican Republic CG Caracoles Argentina CS 2 DraxUnited Kingdom CS – 2 Eletropaulo Brazil LU 8. 93% – 1 Gener Chile CG 1. 73% – – Haripur Bangladesh CG 4. 34% 5. 23% 2 – Kelvin South Africa CG 2. 5x 3. 0x 4. 0x 4. 34% 3. 57% 1. 85% 3. 14% 9. 90% 8. 93% 1 – 1 3 Lal Pir Pakistan CG Los Mina Dominican Republic CG OPGC India CG 30. 4% 3. 0x 3. 57% 3. 60% – 1 Ottana Italy CS 35. 0% 42. 5% 2. 5x 4. 34% 0. 14% – – Red Oak USA CG 37. 5% 30. 0% 20. 0% 34. 0% 39. 5% 36. 5% 26. 1% 32. 2% 3. 0x 2. 5x 4. 0x 4. 0x 3. 57% 3. 57% 1. 85% 1. 85% 0. 00% 9. 98% 9. 98% 8. 93% – 2 2 – Rivnoblenergo Ukraine GD Telasi Georgia GD Uruguaiana Brazil CG Source: Company document. Project descriptions taken from http://www. aes. om/businesses/default. asp. Commodity 3 1 3 2 2 1 1 3 2 3 2 Business / Project Country Business 204-109 Globalizing the Cost of Capital and Capital Budgeting at AES Exhibit 7b AES Selected Financial Data Select Financial Information 10-Year U. S. Treasury Bond U. S. Risk Premium Unlevered Equity Betas by Line of Business Contract Generation Large Utility Growth Distribution Competitive Supply 4. 5% 7. 00% 0. 25 0. 25 0. 25 0. 50 Source: Company document. Exhibit 8 Summary of WACC Calculations for AES Step 1. Calculate unlevered equity beta. 2. Relever equity betas at target capital structure. 3. Calculate cost of equity for each AES business.Required Information †¢ †¢ †¢ †¢ †¢ Betas at comparable U. S. companies Target capitalization ratios Risk-free rate Equity risk premium Relevered equity beta Risk-free rate Default spread Approach Unlever and average equity betas for comparables in each AES line of business Estimated by project using cash flows to calculate desired EBIT coverage 10-Year U. S. Treasury Note Long-term avg. difference between SP 500 and U. S. Treasuries 10-Year U. S. Treasury Note Observed relationship between EBIT coverage ratios for comparable companies and their costs of debt The difference between local government dollardenominated bond yields and the corresponding U. S.Treasury Note 4. Calculate the cost of debt. †¢ †¢ 5. Add country specific risk to the cost of debt and cost of equity. †¢ Local sovereign spread Source: Company document and casewriter analysis. 18 Globalizing the Cost of Capital and Capital Budgeting at AES 204-109 Exhibit 9a EBIT Coverage Ratios and Default Spreads 25. 0x 12. 0% 20. 0x 10. 0% 8. 0% 15. 0x 6. 0% 10. 0x 4. 0% 5. 0x 2. 0% Baa1 Baa2 Baa3 Caa1 Caa2 Caa3 Ba1 Ba2 Ba3 B1 B2 Aa1 Aa2 Aa3 A1 A2 Aaa A3 B3 – EBIT Coverage Ratio Source: Company documents. Default Spread 19 204-109 Globalizing the Cost of Capital and Capital Budgeting at AES Exhibit 9b EBIT Coverage Ratios and Default SpreadsCredit Rating Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 EBIT Coverage Ratio 21. 1x 15. 1x 10. 9x 8. 1x 6. 3x 5. 2x 4. 6x 4. 2x 3. 9x 3. 6x 3. 2x 2. 6x 1. 9x 1. 0x 0. 8x 0. 6x 0. 4x 0. 1x 0. 1x Default Spread 0. 2% 0. 3% 0. 4% 0. 6% 0. 7% 0. 9% 1. 2% 1. 5% 1. 9% 2. 3% 2. 9% 3. 6% 4. 3% 5. 2% 6. 2% 7. 4% 8. 6% 10. 0% 11. 4% Source: Company documents. 20 Globalizing the Cost of Capital and Capital Budgeting at AES 204-109 Exhibit 10 Credit Ratings and Sovereign Spreads Used by AES US (AAA) Australia (AAA) Bahamas (n/a) Canada (AAA) UK (AAA) Italy (AAA) Spain (AAA) Netherlands (AAA) Hungary (A-) Chile (A-) Qatar (A-)Czech Republic (A-) Mexico (BBB) China (BBB) Oman (BBB) South Africa (BBB-) India (BB) Bangladesh (n/a) Sri Lanka (n/a) El Salvador (BB+) Kazakhstan (BB) Panama (BB) Brazil (BB) Dominican Republic (BB-) Bolivia (B) Georgia (n/a) Pakistan (B) Ukraine (B) Venezuela (CCC+) Argentina (D) Cameroon (n/a) Nigeria (n/a) Tanzania (n/a) Uganda (n/a) 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Source: Company document; Standard and Poor’s and Lehman Brothers. 21 204-109 Globalizing the Cost of Capital and Capital Budgeting at AES Exhibit 11 Project Specific Risk Categories and Weightings Risk Category Operational Example An AES plant may fail to operate at capacity or fail to produce sufficient electricity to meet contractual obligations. AES has offtake agreements that—like futures and other derivative instruments—require credit; the counterparty may either fail to post additional collateral as required or fail to pay. Contract settlement processes in a foreign country may change after AES has made investments in a generation facility. Regulatory agencies may choose not to adjust rates for a utility after inflation goes up or other market dynamics change. Construction of a specific plant is complete but the plant may not perform they way it is supposed to (the heat rate is too high, the output too low, the availability too low, etc. ). Prices of coal, oil, or other fuels may spike. How to cite Globalizing the Cost of Capital and Capital Budgeting at Aes, Papers

Jeffersons Views On Education Essays - Thomas Jefferson,

Jefferson's Views On Education Thomas Jefferson's Views on Education Thomas Jefferson believed that universal education would have to precede universal suffrage. The ignorant, he argued, were incapable of self-government. But he had profound faith in the reasonableness and teachableness of the masses and in their collective wisdom when taught. He believed that the schools should teach reading, writing, and arithmetic. Also, the children should learn about Grecian, roman, English, and American History. Jefferson believed the nation needed public schools scattered around, for all male citizens to receive free education. By 1789, the first law was passed in Massachusetts to reaffirm the colonial laws by which towns were obligated to support a school. This law was ignored. Private schools were opened only to those who could afford to pay them. In the middle states religious groups opened most schools. Not many schools or institutions were opened to the nonwealthy people. The women, blacks, and Indians were not able to go to school. It was not until the early 1900's that the Nation began making academies for females, because government thought that they needed to be educated mothers to educate their children. Jefferson believed in the ?Republican Mother?. Later, many 19th century reformers believed in the power of education to reform and redeem- to release a blame or debt, to buy back- ?backward? people. As a result, they generated a growing interest in Indian Education. Jefferson and his followers believed that the Native Americans were ?noble savages?, they hoped that schooling the Indians in white culture would ?uplift?- to improve the spiritual, social, or intellect condition- the tribes. But the states and local government did little to support education. Unlike the women and Indians, blacks had no support at all. There were no efforts to educate enslaved African Americans, mostly because their owner preferred that they remain ignorant and this presumably less likely to rebel. By 1815 there were 30 secondary private schools in Massachusetts, 37 in New York, and many others scattered all around the nation. They were mostly aristocratic; they were not many that were public. Higher education similarly diverged from Republican ideals. The number of colleges and universities in America grew substantially; they went from nine of the time of the Revolution, to twenty-two in 1800, and after that increased steadily. Scarcely more than one white man in a thousand, had access to any college education, and those few who did attend universities were almost without exception members of prosperous, propertied families. Jefferson strongly believed that the nation's future depended, in great part, on the nation's education. He said in 1782, ?Every government degenerates when trusted to the rulers of the people alone. The people themselves, therefore, are its only safe depositories. And to render even them safe, their minds must be improved to a certain degree?. He believed that in order for people to trust the people who are in charge of their government, they need to have some kind of education, to be able to make decisions based on their knowledge. Jefferson also believed that there wasn't any freedom without education. He said, ? If a nation expects to be ignorant and free, in a civilization, it expects what it never was and never will be?. By this, he means that in order for the people to want a free nation and expect for great things to happen, they need to have some education. If they don't want an education, then they are just going to always dream and never get anywhere. The Connecticut school master and lawyer Noah Webster, said that the American schoolboy should be educated as a nationalist. ?As soon as he opens his lips?, Webster wrote, ? he should rehearse the history of his own country?. Every citizen was to be educated to some degree. For the less wealthy people, to also have some education. Jefferson believed that the nation really needed to have schools. He wanted for the poor and rich to have some kind of Education, not only for themselves, but also for the nation's future.