‘Fair Dealing’ Defences in UK Copyright Law: An Analysis

‘Fair Dealing’ Defences in UK Copyright Law: An Analysis â€Å"The ‘fair dealing’ defences occupy a pivotal position in copyright law. They ensure a balance between the interest of the copyright owner in securing a just return on creative work and the public interest in ensuring that intellectual property does not impede the flow of ideas and information.† J Griffiths Preserving Judicial Freedom of Movement –Interpreting Fair Dealing In Copyright Law IPQ 2000, 2,2 164-186. To what extent do you consider that the fair dealing provisions and the supporting case law provide a desirable and consistent balance between these interests? This paper will criticize the restrictive approach of ‘fair dealing’ defences in UK copyright law. American copyright law will be examined in comparison to discuss the alternative attitudes towards ‘fair dealing’ defences in infringement disputes. Changes to the rule will be proposed and discussed to demonstrate how the current copyright defence can be improved to maintain the balance of protecting intellectual property and freedom of information. Fair Dealing defences which are used against copyright infringement cases raise important philosophical issues at the heart of Intellectual Property. There is a need for society to share and build on existing knowledge for progress. For example it can be argued the need to allow freedom of expression, is ‘more than necessary to incentivise creative expression in the first place.’[1] Fair dealing defences attempt to mediate between the fine line of the commercial proprietary rights granted through copyright and the legitimate public use of material in good faith, to teach, educate and share cultural works. Thus there is a fundamental dichotomy between the free expression of ideas in the public domain and the rightful protection of creative works which use such knowledge and information. This is termed the ‘idea-expression divide.’[2] Kretschmer [3] argues against the concept of copyright, due to its capacity to act as an ‘artificial barrier’[4] i mpeding the exchange of ideas in society. One explanation behind such divisions can be suggested to lie in the historical Lockean conceptualization of property. This is defined negatively creating ‘rights to exclude access.’[5] This ‘absolutist conception of property rights’[6] allows the creators to exploit and monopolize economic, cultural production at the expense of fair uses in the public interest and freedom of expression. But there are those who support the rights of the author. For example the French system of droit d’auteur enables an artist to control how their work is distributed in the market. While concerned about economic exploitation of work, moral rights also ensure the author has rights to protect the integrity of a work. Thus the British concept of fair dealing defences must balance these conflicting tensions. British copyright law protects the manner of expression or form of the idea, not the idea itself. A book can be protected but not the actual underlying ideas and themes conveyed in the written text. This was stated in the case of Donoghue[7] where the judge held ‘the person who has clothed the idea in form, whether by means of a picture, a play or book’ will enjoy the benefits of copyright protection. Fair Dealing in UK copyright law is a defence under Sections 28-76 of the CDPA 1988[8]. The legislation provides for a set of prescribed circumstances, where reproductions of copyright material will not be considered an infringement. Fair dealing is outlined in sections 20-30. There are three categories where copying can be considered a fair action to take when using copyright protected material. They are 1) for research and private study under section 29; 2) for criticism and review in section 30; and 3) reporting current events under section 31. It must be noted that the legislation provides no clear definition of what constitutes fair use of material which attracts copyright. Thus the act restricts the defence to the non exclusive purposes as stated above. One reason for restricting fair use to a number of permitted acts enables the judge to consider other factors which are unique to the case itself. Fair dealing in this sense is shaped in the UK by judges as a ‘matter of im pression’[9] on a case by case basis. The scope of fair dealing was clarified by Lord Denning in Hubbard v. Vosper. [10] This case suggested certain criteria to be considered by the judge in order to determine whether fair use can be permitted in different situations involving the use of copyrighted material. Denning outlined considerations, such as the frequency and extent of quotations, and subsequently the nature of using quotations. Denning states in response to this test, ‘If they are used as a basis of comment, criticism or review that may be fair dealing. If they are used to convey the same information for a rival purpose, they may be unfair.’ Another rule of thumb is the extent of the quotation within copyrighted work. This considers the size of the actual quote used and its justified proportions in fair use. For example Denning suggests ‘to take long extracts and attach short commentary maybe unfair.’ Each case of infringement is judged by objective standards, through the eyes of an hon est person as to whether they would have dealt with the protected material in the same way as the infringer has acted. Existing fair dealing case law, only serves to highlight the ambiguity of the defence under English law. It is difficult to provide a desirable balance which protects the exclusive rights of the copyright holder but maintain a consistent approach which provides certainty to use material which is permitted in law. For example the purposes of legitimate research, the courts will not allow commercial research if it is used to produce a competing product or work. This was highlighted in the case of Time Out.[11] It can be suggested large amounts of copying will be allowed for private research and study in the eyes of the law. Academics argue in this context fair dealing functions to enable freedom of individual research and study. To require and enforce protective measures to prevent the use of copyrighted material is impractical and uneconomic. It is argued copyright should not be used as a bar to those who wish to use the work in their own studies. Torremans argues copyright property rhetoric should not be allowed to supersede important value of free ideas. For example ‘copyright should not become a financial and practical obstructing barrier. There needs to be a balance between the interests of the copyright owners and society in the good functioning of the copyright system and the inter est of society for its development.’[12] It can be suggested this same line of reasoning underpins the fair dealing doctrine for educational purposes. Copying is permitted for intellectual property in dramatic, literary, artistic or musical work for purposes of instruction. Thus a student would be allowed to copy a part of an academic article in order to support their research or point of view in an essay. Under the category of infringing material for the purposes of criticism and review, it has been established that infringement will not occur if there is adequate acknowledgement of the author, the title or description of work is made available, as held in the case of Sillitoe.[13] Fair dealing was extended in the case of Pro Sieben Media AG [14] which held criticism of work can be fair, even if including the ideas in a work to discuss its ethical implications. The case stated that the ‘defence is limited to criticizing or reviewing that or another work or a performance of a work.’ The function of the defence is to allow a critic a sensible degree of leeway to conduct a review of the work. The courts stated the use of infringing material in a documentary was ‘a genuine piece of criticism and review rather than an attempt to dress ordinary copyright infringement up as criticism.’[15] This case suggests it is fair to critically treat copyrighted material using the ideas within the work. But crucially ‘the defence does not cover those cases where only ideas, doctrine, philosophy and events are criticized.’ [16] Therefore the fair dealing doctrine is narrow in scope, restricted only to the fair use for the purposes of critical review. This case been criticized by Torremans who has argued it is not sufficient to rely on the infringers ‘sincere belief’ they are conducting fair criticism. There is an imbalance for those to wishing to exploit the fine line and cynically infringe work and simply claim the fair dealing defence for the purpose of criticism and review. It can be suggested in comparison to US legal ‘multi – purpose’[17] concept of fair use, the UK fair dealing doctrine is too restrictive in scope and interpretation. The UK is restrictive because the CDPA legislates three categories of permitted copying under the fair dealing defences, which are determined on a case by case basis of the judge. Thus anything else will be uncovered by the doctrine. The American legal system in contrast uses four standard ‘balancing’[18] tests to determine the extent of copying protected material which is covered under the fair use doctrine. The fair use doctrine is a wider and more flexible legal concept to balance the ‘idea-expression’ division in intellectual property. Under the American Copyright Act 1976 17 U.S.C Section 107 states: ‘In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include- 1.the purpose and character of the use, including whether such use is of a commercial nature or it is for non profit educational purposes; 2.the nature of the copyrighted work; 3.the amount and substantiality of the portion used in relation to the copyrighted work as a whole, and 4.the effect of the use upon the potential market for or value of the copyrighted work.’ The fair use doctrine is not defined within the statute, it is left open to broad interpretation by judicial opinion. This ensures a degree of flexibility for the continued transmission of ideas in society. This for example can be seen when analyzing the primary factor of purpose and character. The concept of fair use rests on the idea of limited ‘transformative use’[19] for similar purposes of educating, parody or comment. The standard allows the courts to asses whether the use is fair and justified. It also requires the burden of proof on the infringer to ‘demonstrate how the consideration is the extent to which the use is interpreted as transformative as opposed to merely derivative.’[20] This point of law was considered in cases such as Mattel Inc.[21] The toy company lost the claim against an artist who parodied the iconic â€Å"Barbie† doll figure in a non derivative manner. The doll was used in an entirely different context which defeated the c opyright infringement claim. Secondly the benefits of American fair use can be seen when considering the nature of the work. The standard allows for the distinction between created work and factual information which serves the public through its dissemination into the open arena. It is argued there is more ‘leeway’[22] to copy factual material. This provision directly allows the courts to ‘prevent the private ownership of work that rightfully belongs in the public domain, as facts and ideas are separate from copyright.’[23] This was held to be the case in Time Inc [24]concerning the public interest of the film depicting the assignation of President Kennedy. The social need to keep this in the public domain was greater than the commercial need to uphold the copyright in the film footage. The third factor assessing the amount and substantiality of the original copied work is a more troublesome standard to determine in the courts. For example the issue of sampling in hip hop music, which reclaims existing music and uses it to create a new track, was litigated. Here the courts have been unusually strict seen in the decision Grand.[25] The case enforced the copyright of a Gilbert O’Sullivan song and lead to the restrictive requirement of licensing samples of music from the copyright owner, if the sample if substantially recognizable. The fourth factor of investigating the effect upon the work’s value attempts to quantify the commercial impact infringement has had on the protected material. The ‘Betamax’[26] case involved the copyright owner Universal loosing the infringement claim as it could not prove with any reliable evidence that the Betamax technology had dented the commercial broadcaster’s profits. Such an approach allows the courts to factor in alleged market harm to copyrighted material, and give equal consideration to economic concerns of the rights holder to make a fully informed assessment of the situation. These four non exclusive factors provide enough flexibility for judicial opinion to consider other important considerations in relation to each individual case of infringement. In addition flexibility is encouraged as the fair use doctrine is a positive ‘defense to copyright, which means if the defendants actions do not constitute and infringements of the plaintiffs rights, fair use does not even arise as an issue.’[27] Thus a broader view is established in the US system. You do not need the consent of the copyright owner under American law to engage in fair use of material which attracts copyright. However further criticism of the UK approach to fair dealing arises in the wider context of digital copying technology and file sharing. The doctrine is made to look ineffective, mainly through the botched nature of the UK implementation of the EU Directives on the Information Society. This paper believes it is necessary to resolve these problems and rethink the traditional approach to copyright infringement in a digital environment. The aim to balance the conflicting factors of the author’s rights and the need to allow the free exchange of knowledge in society is harder to perform with widespread digital copying. But it is possible through Digital Management Systems, to distribute copyrighted content through technology which limits the capacity to duplicate files by the consumer. Despite DMS, this paper believes the frequency and simplicity of replication facilitated through digital technology far outweighs such content managed systems that use inbuilt licensing restrictions. For example peer 2 peer file sharing and online digital content has facilitated the exchange of copyrighted music in huge numbers among users of a globalised network on the internet. It can be suggested that the UK’s implementation of the EU Information and Society Directive (2001) shows how outdated the present conception of fair dealing defences are. Article 5 deals with the exceptions and limitations to the use of copyright, in order to harmonize European policy. Under Article 5(5) a ‘draconian’[28] three step test is used to assess any infringement exceptions in special cases. This section is to be ‘applied if they do not conflict with normal exploitation of the work and if the exception does not unreasonably prejudice the legitimate interests of the rights holder.’[29]Critics suggest this is an even stricter standard providing no fair use for ‘copy protected on demand services.’[30] Critics view the directive to mistakenly allow principles of freedom of expression to be ‘handed over to the rights owner.’[31] For example under article 6(4) availability of research material through on-demand services c an be contractually blocked by the copyright holder. This has major repercussions for the role of UK fair dealing defences as it renders the doctrine ineffective in the digital arena. Kretschmer worries this amounts to a ‘possibility of perpetual copyright.’[32] In addition to this under 5(1), the directive provides for technical exceptions which involve necessary copying for technological process and digital content. Temporary reproductions such as the cache of files within a browser which copy files of data will not infringe copyright as such acts are ‘incidental and should have no economic significance.’[33] In light of such developments it can be suggested there is a need to find alternative solutions to reward copyright owners interest within a digital context. There is a need for copyright to ‘generate new resources of remuneration’[34] for rights owners instead of functioning in a prohibitive manner. Kretschmer proposes alternative system of royalties to be used to compensate owners who can not stem the tide of digital copying. For example ‘a small royalty percentage on content traffic revenues from ISP’s would have been the obvious legal innovation.’[35] Such novel solutions are needed in order to successfully balance the freedom of information with traditional copyright interests. In conclusion this paper argues for the need to make changes and decided upon pragmatic alternative solutions to the current legal situation. Fair dealing should be redefined to enable copyright infringement defences take into account the development of digital content. It can be suggested to ensure greater flexibility the UK should adopt the wider US fair use doctrinal approach to defending infringement. Legislation should widen the scope of fair dealing through standard factor based tests. Adopting such standards would promote a liberal approach to asses the degree and nature of infringement. This is needed to make sure the vital balancing act of competing ideological tensions continue within intellectual property law. Bibliography Klang Murray (eds) Human Rights in the Digital Age, 2005 Cavendish Lloyd, Information Technology Law 4th Ed, 2004 ,OUP Bently Sherman, Intellectual Property Law, 2nd Ed, 2004, Oxford Holyoak Torremans, Intellectual Property Law, 3rd Ed, 2001, Butterworths Intellectual Property Law, Fourth Edition 2004, Cavendish Publishing J Griffiths, Preserving Judicial Freedom of Movement –Interpreting Fair Dealing In Copyright Law IPQ 2000, 2,2 164-186 M. Kretschmer, Digital Copyright: End of an Era, 2003 www.cippm.org.co.uk Joint Information Systems Committee and Publishers Association, Guidelines for Fair Dealing in An Electronic Environment, 1998, www.ukonln.ac.uk/services/elib/papers/pa/fair/intro.html R. Buchan, Fair Picture, Guidance from the English High Court on Fair Dealing for the Purpose of Criticism and Review, as Applied to Copyright Material, The Journal of Law and Society, August 2005, Page 52, www.journalonline.co.uk/article/1002090.aspx 1 Footnotes [1] W. Landes and R. Posner, An Economic Analysis Of Copyright Law, (1989) 18 Journal of Legal Studies, 325-366 [2] Http://en.wikipedia.org/wiki/idea-expression_divide [3] www.cippm.org.uk, M. Kretschmer, Digital Copyright: The End of An Era [4] http:en.wikipedia.org/wiki/copyright/fair_use_and_fair_dealing [5] www.cippm.org.uk, M. Kretschmer, Digital Copyright: The End of An Era [6] as above [7] Donoghue v Allied Newspapers Limited (1938) Ch 106 [8] Copyright, Designs and Patent Act 1988 [9] Lord Denning Hubbard v. Vosper (1972) 2 QB 84 1 All ER [10] Hubbard V Vosper (1972) 2 QB 84, 1 All ER 1023 [11] Independent television Publications Ltd v. Time Out Ltd (1984) FSR 545 [12] p. 258 Holyoak and Torremans, Intellectual Property Law, 3rd Edition, Butterworths, 2001 [13] Sillitoe v. McGraw-Hill Book Co (UK) Ltd (1983) FSR 545 [14] Pro Sieben Media AG v. Carlton TV (1999) [15] p.259 as above [16] p.259, Holyoak and Torremans, Intellectual Property Law, 3rd Edition, Butterworths, 2001 [17] www.cippm.org.uk, M. Kretschmer, Digital Copyright: The End of An Era [18] http://en.wikipedia.org/wiki/fair_use [19] http://fairuse.stanford.edu.copyright_and_fair_use_overview/chapter9/index.html [20] http://en.wikipedia.org/wiki/fair_use [21] Mattel Inc v. Walking Mountain Productions [22] http://en.wikipedia.org/wiki/fair_use [23] http://en.wikipedia.org/wiki/fair_use [24] Time Inc. v. Bernard Geis Associates 293 F Supp. 130 [25] Grand Upright v. Warner 780 F Supp 182 (S.D.N.Y 1991) [26] Sony Corp v. Universal City Studios , 464 U.S 417, 451 (1984) [27] as above [28] www.cippm.org.uk, M. Kretschmer, Digital Copyright: The End of An Era [29] p.268, Holyoak and Torremans, Intellectual Property Law, 3rd Edition, Butterworths, 2001 [30] p.8 www.cippm.org.uk, M. Kretschmer, Digital Copyright: The End of An Era [31] as above [32] p.10 as above [33] as above [34] as above [35] p.3, M. Kretschmer, Digital Copyright: The End of An Era

Mike Tyson Point Of View :: essays research papers

During March 2001, the American heavyweight boxer Mike Tyson and his management expressed a keen interest in visiting Australia to host a boxing bout. The decision about whether or not to welcome Tyson will fall upon the Immigration Minister, Mr. Phillip Ruddock. If Tyson applies for an official visa to enter Australia it should be granted. Australia should seize this great opportunity and ignore the unjustified outrage expressed by some interest groups. With women and family groups applying pressure upon the Immigration Minister to ban Tyson from Australia they are denying him the opportunity to do his job. Tyson does not indent to visit Australia on a holiday and to roam the streets in search of sexual prey. He will have the intention of fulfilling his responsibilities and given the time spent in prison for crime committed long ago, fears of him re-offending are unjustified. Furthermore, people jump to conclusions about his character based on his past rather than likely future intentions. According to a close friend of Tyson, former Australian boxer Jeff Fenech, Tyson would have a busy program including promoting boxing on a world class level in this country and raising the profile of the sport. Fenech is in a stronger position to judge Tyson’s character rather than other people, because of his inside knowledge of how professional boxing is organised. This makes comments by the chairperson of the woman’s group to be obsolete. She made many negative comments about Tyson and his personalty. However, she had no first hand experience with Tyson compared with Fenech and she was not entitled to establish obstacles for him just to do his job based on crimes committed long ago [be specific]. Tyson’s visit to Australia would cause considerable benefits. The attraction of a visit by a former world heavyweight champion boxer would be irresistible for many people and would lead to a significant injection of money into domestic business.

Apple Computer, Inc. Essay -- Corporate Profile

When Steve Jobs started his computer building business some many years ago, I wonder if It had dawned on him that so many papers and textbook articles would be written about his company and how he and his company Apple did busy. Apple has been on the cutting edge of so many different ideas and has truly changed how the business world turns. When performing an internal scan of Apple and looking at the companies strengths and weakness three categories rise to the top. These categories are Apples Structure or to put it into other words it is a review of Apple’s chain of command. Really, it is who reports to whom and when reviewing the top management and some of the personal that are sitting on the board of directors? In 1985, an executive from PepsiCo came to Apple and took over the title of CEO from Steve Jobs. Jobs still remained with the Apple and became the new CEO’s mentor. This lasted until there was a power struggle between the two, which lead to the board directors of Apple, and the CEO agreeing to avoid Jobs risky plan for Apple future at that time. This difficult battle ended with Jobs leaving Apple. Fromm 1990 to 1993 the company underwent several CEO changes and many of the top management thought it would be best for Apple to merge with a competitor but after no merge took place many of the top executives left Apple. By 1996, the structure of Apple as in complete disarray and the company seemed to be doomed. However, Apple was sinking and was looking for a lifesaver and Steve Jobs was on the side of the pool with NeXT a company he formed after leaving Apple. NeXT began to breathe life back into Apple after the merger. By the 2006, Apple was very successful and breaking new ground on technology, which w... ...apple-supplier-in-china-pledges-changes-in-working-conditions.html Jarboe, K. (2011, January 18). Apple's assets. Retrieved March 26, 2012, from The Intangible Economy: http://www.athenaalliance.org/weblog/archives/2011/01/apples_assets.html Leander, K. (2008, March 18). How Apple Got Everything Right By Doing Everything Wrong. Retrieved March 28, 2012, from WIRED MAGAZINE: 16.04: http://www.wired.com/techbiz/it/magazine/16-04/bz_apple?currentPage=all Meyer, C. (2012, 02 19). Apple Business Strategy 2012. Retrieved March 25, 2012, from Working Wider: http://www.workingwider.com/strategic_innovation/apple-business-strategy-2012/ Tobak, S. (2011, March 02). Inside Apple's Cult-Like Culture. Retrieved March 20, 2012, from Business Insider: http://articles.businessinsider.com/2011-03-02/strategy/30029743_1_apple-employees-apple-headquarters-apple-manager .

The Quintessential Rebel :: essays research papers

The Quintessential Rebel In Allan Sillitoe’s The Loneliness of a Long Distance Runner, we are introduced to Smith, a man with his own standards, beliefs, values, and battles. As we are taken through the story of a period of his live, we come to understand what Smith really stands for. He is a diehard rebel that is destined to always stick to his beliefs, and is willing to sacrifice all in a battle against his greatest enemy and opressor, society. Throughout the book Smith gives us a chance to get to know him. He willingly shares his thoughts with the reader, and often times his thoughts develop as he is telling his story giving us an up-close look at the inner workings of Smith’s mind and personality. Smith belongs to a group of people he calls the Out-Laws. It is the underprivileged lower class poor street criminals. Crime runs in Smith’s family, and being born into poverty he nether sees, nor is even willing to contemplate a life without crime. At a point he hints on having some communist views, and perhaps suggests that his father had communist friends, if he wasn’t one himself. Fatally inflicted by cancer, Smith’s father died a painful death. We later find out that it was Smith who found his father breathless in a pool of his own blood, and to this day has a great deal of respect for him. The first time Smith’s family gets a taste of a financially comfortable life is when the factor y his father worked in gave them a lump of cash upon his father’s death. â€Å"†¦a wad of crisp blue-back fivers ain’t a sight of good† (Sillitoe, 20) says Smith as the one break his family got was only due to his father’s death. Smith is not money hungry, he steels simply to get by. He knows exactly where he stands in the world- in direct opposition of the In-laws, the â€Å"pig-faced snotty-nosed dukes and ladies"†(Sillitoe, 8). He realizes that he is a poor nobody, a petty criminal, an outcast of society. Smith by nature is a rebel. He puts himself and his fellow Out-laws in direct opposition of the rest; for him it’s â€Å"us versus them†. As we are getting to know Smith, he is spending his time in a Borstal after having been caught for a bakery robbery. He has no regrets about doing what he did in the bakery shop, and has a big enough heart to be happy for his accomplice, Mike for getting off.

Part Three Chapter XI

XI Krystal did not take Robbie to nursery on Tuesday morning, but dressed him for Nana Cath's funeral instead. As she pulled up his least ripped trousers, which were a good two inches too short in the leg, she tried to explain to him who Nana Cath had been, but she might as well have saved her breath. Robbie had no memory of Nana Cath; he had no idea what Nana meant; no concept of any relative other than mother and sister. In spite of her shifting hints and stories, Krystal knew that Terri had no idea who his father was. Krystal heard her mother's footsteps on the stairs. ‘Leave it,' she snapped at Robbie, who had reached for an empty beer can lying beneath Terri's usual armchair. ‘C'm'ere.' She pulled Robbie by the hand into the hall. Terri was still wearing the pyjama bottoms and dirty T-shirt in which she had spent the night, and her feet were bare. ‘Why intcha changed?' demanded Krystal. ‘I ain't goin',' said Terri, pushing past her son and daughter into the kitchen. ‘Changed me mind.' ‘Why?' ‘I don' wanna,' said Terri. She was lighting a cigarette off the ring of the cooker. ‘Don' fuckin' ‘ave to.' Krystal was still holding Robbie's hand, as he tugged and swung. ‘They're all goin',' said Krystal. ‘Cheryl an' Shane an' all.' ‘So?' said Terri aggressively. Krystal had been afraid that her mother would pull out at the last minute. The funeral would bring her face to face with Danielle, the sister who pretended that Terri did not exist, not to mention all the other relatives who had disowned them. Anne-Marie might be there. Krystal had been holding on to that hope, like a torch in the darkness, through the nights she had sobbed for Nana Cath and Mr Fairbrother. ‘You gotta go,' said Krystal. ‘No, I ain'.' ‘It's Nana Cath, innit,' said Krystal. ‘So?' said Terri, again. ‘She done loads fer us,' said Krystal. ‘No, she ain',' snapped Terri. ‘She did,' said Krystal, her face hot and her hand clutching Robbie's. ‘Fer you, maybe,' said Terri. ‘She done fuck-all for me. Go an' fuckin' bawl all over ‘er fuckin' grave if yeh want. I'm waitin' in.' ‘Wha' for?' said Krystal. ‘My bus'ness, innit.' The old familiar shadow fell. ‘Obbo's comin' round, is ‘e?' ‘My bus'ness,' repeated Terri, with pathetic dignity. ‘Come to the funeral,' said Krystal loudly. ‘You go.' ‘Don' go fuckin' usin',' said Krystal, her voice an octave higher. ‘I ain',' said Terri, but she turned away, looking out of the dirty back window over the patch of overgrown litter-strewn grass they called the back garden. Robbie tugged his hand out of Krystal's and disappeared into the sitting room. With her fists deep in her trackie pockets, shoulders squared, Krystal tried to decide what to do. She wanted to cry at the thought of not going to the funeral, but her distress was edged with relief that she would not have to face the battery of hostile eyes she had sometimes met at Nana Cath's. She was angry with Terri, and yet felt strangely on her side. You don't even know who the father is, do yeh, yer whore? She wanted to meet Anne-Marie, but was scared. ‘All righ', then, I'll stay an' all.' ‘You don' ‘ave ter. Go, if yeh wan'. I don' fuckin' care.' But Krystal, certain that Obbo would appear, stayed. Obbo had been away for more than a week, for some nefarious purpose of his own. Krystal wished that he had died, that he would never come back. For something to do, she began to tidy the house, while smoking one of the roll-ups Fats Wall had given her. She didn't like them, but she liked that he had given them to her. She had been keeping them in Nikki's plastic jewellery box, along with Tessa's watch. She had thought that she might not see Fats any more, after their shag in the cemetery, because he had been almost silent afterwards and left her with barely a goodbye, but they had since met up on the rec. She could tell that he had enjoyed this time more than the last; they had not been stoned, and he had lasted longer. He lay beside her in the grass beneath the bushes, smoking, and when she had told him about Nana Cath dying, he had told her that Sukhvinder Jawanda's mother had given Nana Cath the wrong drugs or something; he was not clear exactly what had happened. Krystal had been horrified. So Nana Cath need not have died; she might still have been in the neat little house on Hope Street, there in case Krystal needed her, offering a refuge with a comfortable clean-sheeted bed, the tiny kitchen full of food and mismatched china, and the little TV in the corner of the sitting room: I don' wanna watch no filth, Krystal, turn that off. Krystal had liked Sukhvinder, but Sukhvinder's mother had killed Nana Cath. You did not differentiate between members of an enemy tribe. It had been Krystal's avowed intention to pulverize Sukhvinder; but then Tessa Wall had intervened. Krystal could not remember the details of what Tessa had told her; but it seemed that Fats had got the story wrong or, at least, not exactly right. She had given Tessa a grudging promise not to go after Sukhvinder, but such promises could only ever be stop-gaps in Krystal's frantic ever-changing world. ‘Put it down!' Krystal shouted at Robbie, because he was trying to prise the lid off the biscuit tin where Terri kept her works. Krystal snatched the tin from him and held it in her hands like a living creature, something that would fight to stay alive, whose destruction would have tremendous consequences. There was a scratched picture on the lid: a carriage with luggage piled high on the roof, drawn through the snow by four chestnut horses, a coachman in a top hat carrying a bugle. She carried the tin upstairs with her, while Terri sat in the kitchen smoking, and hid it in her bedroom. Robbie trailed after her. ‘Wanna go play park.' She sometimes took him and pushed him on the swings and the roundabout. ‘Not today, Robbie.' He whined until she shouted at him to shut up. Later, when it was dark – after Krystal had made Robbie his tea of spaghetti hoops and given him a bath; when the funeral was long since over – Obbo rapped on the front door. Krystal saw him from Robbie's bedroom window and tried to get there first, but Terri beat her to it. ‘All righ', Ter?' he said, over the threshold before anyone had invited him in. †Eard you was lookin' fer me las' week.' Although she had told him to stay put, Robbie had followed Krystal downstairs. She could smell his shampooed hair over the smell of fags and stale sweat that clung to Obbo in his ancient leather jacket. Obbo had had a few; when he leered at her, she smelt the beer fumes. ‘All righ', Obbo?' said Terri, with the note in her voice Krystal never heard otherwise. It was conciliating, accommodating; it conceded that he had rights in their house. ‘Where you bin, then?' ‘Bristol,' he said. ‘How's you, Ter?' ‘She don' wan' nuthin',' said Krystal. He blinked at her through his thick glasses. Robbie was clutching Krystal's leg so tightly that she could feel his nails in her skin. ‘Oo's this, Ter?' asked Obbo. ‘Yer mum?' Terri laughed. Krystal glared at him, Robbie's grip tight on her thigh. Obbo's bleary gaze dropped to him. ‘An' ‘ow's me boy?' ‘He ain' your fuckin' boy,' said Krystal. †Ow d'you know?' Obbo asked her quietly, grinning. ‘Fuck off. She don' wan' nuthin'. Tell ‘im,' Krystal virtually shouted at Terri. ‘Tell ‘im you don' wan' nuthin'.' Daunted, caught between two wills much stronger than her own, Terri said, †E on'y come rounda see – ‘ ‘No, ‘e ain't,' said Krystal. ‘No, ‘e fuckin' ain't. Tell ‘im. She don' wan' nuthin',' she said fiercely into Obbo's grinning face. ‘She's bin off it fer weeks.' ‘Is tha' right, Terri?' said Obbo, still smiling. ‘Yeah, it is,' said Krystal, when Terri did not answer. ‘She's still at Bellchapel.' ‘Noffur much longer,' said Obbo. ‘Fuck off,' said Krystal, outraged. ‘Closin' it,' said Obbo. ‘Are they?' said Terri in sudden panic. ‘They ain't, are they?' ‘Course they are,' said Obbo. ‘Cuts, innit?' ‘You don't know nuthin',' Krystal told Obbo. ‘It's bollocks,' she told her mother. ‘They ‘aven' said nuthin', ‘ave they?' ‘Cuts,' repeated Obbo, patting his bulging pockets for cigarettes. ‘We got the case review,' Krystal reminded Terri. ‘Yeh can't use. Yeh can't.' ‘Wha's that?' asked Obbo, fiddling with his lighter, but neither woman enlightened him. Terri met her daughter's gaze for a bare two seconds; her eyes fell, reluctantly, to Robbie in his pyjamas, still clinging tightly to Krystal's leg. ‘Yeah, I wuz gonna go ter bed, Obbo,' she mumbled, without looking at him. ‘I'll mebbe see yer another time.' ‘I ‘eard your Nan died,' he said. ‘Cheryl wuz tellin' me.' Pain contorted Terri's face; she looked as old as Nana Cath herself. ‘Yeah, I'm goin' ter bed. C'mon, Robbie. Come wi' me, Robbie.' Robbie did not want to let go of Krystal while Obbo was still there. Terri held out her claw-like hand. ‘Yeah, go on, Robbie,' Krystal urged him. In certain moods, Terri clutched her son like a teddy bear; better Robbie than smack. ‘Go on. Go wi' Mum.' He was reassured by something in Krystal's voice, and allowed Terri to take him upstairs. ‘See yeh,' said Krystal, without looking at Obbo, but stalking away from him into the kitchen, pulling the last of Fats Wall's roll-ups out of her pocket and bending to light it off the gas ring. She heard the front door close and felt triumphant. Fuck him. ‘You got a lovely arse, Krystal.' She jumped so violently that a plate slipped off the heaped side and smashed on the filthy floor. He had not gone, but had followed her. He was staring at her chest in its tight T-shirt. ‘Fuck off,' she said. ‘Big girl, intcha?' ‘Fuck off.' ‘I ‘eard you give it away free,' said Obbo, closing in. ‘You could make better money'n yer mum.' ‘Fuck – ‘ His hand was on her left breast. She tried to knock it away; he seized her wrist in his other hand. Her lit cigarette grazed his face and he punched her, twice, to the side of the head; more plates shattered on the filthy floor and then, as they wrestled, she slipped and fell; the back of her head smacked on the floor, and he was on top of her: she could feel his hand at the waistband of her tracksuit bottoms, pulling. ‘No – fuck – no!' His knuckles in her belly as he undid his own flies – she tried to scream and he smacked her across the face – the smell of him was thick in her nostrils as he growled in her ear, ‘Fuckin' shout and I'll cut yer.' He was inside her and it hurt; she could hear him grunting and her own tiny whimper; she was ashamed of the noise she made, so frightened and so small. He came and clambered off her. At once she pulled up her tracksuit bottoms and jumped up to face him, tears pouring down her face as he leered at her. ‘I'll tell Mist' Fairbrother,' she heard herself sob. She did not know where it came from. It was a stupid thing to say. ‘The fuck's he?' Obbo tugged up his flies, lit a cigarette, taking his time, blocking her exit. ‘You fuckin' ‘im too, are yeh? Little slapper.' He sauntered up the hall and was gone. She was shaking as she had never done in her life. She thought she might be sick; she could smell him all over her. The back of her head throbbed; there was a pain inside her, and wetness seeping into her pants. She ran out of the room into the living room and stood, shivering, with her arms wrapped around herself; then she knew a moment of terror, that he would come back, and hurried to the front door to lock it. Back in the sitting room she found a long stub in the ashtray and lit it. Smoking, shaking and sobbing, she sank into Terri's usual chair, then jumped up because she heard footsteps on the stairs: Terri had reappeared, looking confused and wary. ‘Wha'ssa matter with you?' Krystal gagged on the words. ‘He jus' – he jus' fucked me.' ‘Wha'?' said Terri. ‘Obbo – ‘e jus' – ‘ †E wouldn'.' It was the instinctive denial with which Terri met all of life: he wouldn't, no, I never, no, I didn't. Krystal flew at her and pushed her; emaciated as she was, Terri crumpled backwards into the hall, shrieking and swearing; Krystal ran to the door she had just locked, fumbled to unfasten it and wrenched it open. Still sobbing, she was twenty yards along the dark street before she realized that Obbo might be waiting out here, watching. She cut across a neighbour's garden at a run and took a zig-zag route through back ways in the direction of Nikki's house, and all the time the wetness spread in her pants and she thought she might throw up. Krystal knew that it was rape, what he had done. It had happened to Leanne's older sister in the car park of a nightclub in Bristol. Some people would have gone to the police, she knew that; but you did not invite the police into your life when your mother was Terri Weedon. I'll tell Mist' Fairbrother. Her sobs came faster and faster. She could have told Mr Fairbrother. He had known what real life was like. One of his brothers had done time. He had told Krystal stories of his youth. It had not been like her youth – nobody was as low as her, she knew that – but like Nikki's, like Leanne's. Money had run out; his mother had bought her council house and then been unable to keep up the payments; they had lived for a while in a caravan lent by an uncle. Mr Fairbrother took care of things; he sorted things out. He had come to their house and talked to Terri about Krystal and rowing, because there had been an argument and Terri was refusing to sign forms for Krystal to go away with the team. He had not been disgusted, or he had not shown it, which came to the same thing. Terri, who liked and trusted nobody, had said, †E seems all righ',' and she had signed. Mr Fairbrother had once said to her, ‘It'll be tougher for you than these others, Krys; it was tougher for me. But you can do better. You don't have to go the same way.' He had meant working hard at school and stuff, but it was too late for that and, anyway, it was all bollocks. How would reading help her now? ‘Ow's me boy? He ain' your fuckin' boy. ‘Ow d'you know? Leanne's sister had had to get the morning-after pill. Krystal would ask Leanne about the pill and go and get it. She could not have Obbo's baby. The thought of it made her retch. I gotta get out of here. She thought fleetingly of Kay, and then discarded her: as bad as the police, to tell a social worker that Obbo walked in and out of their house, raping people. She would take Robbie for sure, if she knew that. A clear lucid voice in Krystal's head was speaking to Mr Fairbrother, who was the only adult who had ever talked to her the way she needed, unlike Mrs Wall, so well-intentioned and so blinkered, and Nana Cath, refusing to hear the whole truth. I gotta get Robbie out of here. How can I get away? I gotta get away. Her one sure refuge, the little house in Hope Street, was already being gobbled up by squabbling relatives †¦ She scurried around a corner underneath a street lamp, looking over her shoulder in case he was watching her, following. And then the answer came to her, as though Mr Fairbrother had shown her the way. If she got knocked up by Fats Wall, she would be able to get her own place from the council. She would be able to take Robbie to live with her and the baby if Terri used again. And Obbo would never enter her house, not ever. There would be bolts and chains and locks on the door, and her house would be clean, always clean, like Nana Cath's house. Half running along the dark street, Krystal's sobs slowed and subsided. The Walls would probably give her money. They were like that. She could imagine Tessa's plain, concerned face, bending over a cot. Krystal would have their grandchild. She would lose Fats in getting pregnant; they always went, once you were expecting; she had watched it happen nearly every time in the Fields. But perhaps he would be interested; he was so strange. It did not much matter to her either way. Her interest in him, except as the essential component in her plan, had dwindled to almost nothing. What she wanted was the baby: the baby was more than a means to an end. She liked babies; she had always loved Robbie. She would keep the two of them safe, together; she would be like a better, kinder, younger Nana Cath to her family. Anne-Marie might come and visit, once she was away from Terri. Their children would be cousins. A very vivid image of herself and Anne-Marie came to Krystal; they were standing at the school gates of St Thomas's in Pagford, waving off two little girls in pale blue dresses and ankle socks. The lights were on in Nikki's house, as they always were. Krystal broke into a run.

Drugs and Its Effects

A drug is a substance which has a discernible physiological effect when taken into the body. These chemicals change the functions of the central nervous system (CNS), providing temporary relief from mental, physical and social problems. Usage of a drug over a period of time often results in dependence and tolerance of the drug. The user experiences physical and psychological withdrawal symptoms when attempts are made to quit the drug. Tolerance refers to the increased ability of the body to tolerate the drug without ill effects. Due to drugs having the capacity to enhance performance, they are often used recreationally and abused. This leads to addiction which can potentially destroy lives. Drugs which alter behavior could be categorized as stimulants, hallucinogens and depressants. Stimulants are a class of drug which can alter the way in which someone behaves by stimulating the central nervous systems. In other words, they increase the activity of the brain resulting in increased alertness physical activity, productivity, endurance and motivation. Stimulants include amphetamines, called ‘uppers’, cocaine and nicotine. Users usually find relaxation and rest impossible and tend to have no appetite. Moreover, side effects may include muscle spasms, chest pain, nausea, and blurred vision due to an overworked heart and the subsequent high blood pressure. During World War II, stimulants were extensively used by soldiers to maintain alertness. By then, various forms of the drug were readily available such as methamphetamine. Today however, due to its side effects and addictive properties, possession and usage have been made illegal and doctor prescriptions have been significantly reduced. Hallucinogens are a class of drugs which cause an alteration in perception, thought, or mood. Examples of hallucinogens drugs include marijuana, magic mushrooms and cannabis. These drugs distort sensory perception by interfering with the activity of acetylcholine, norepinaphrine, or serotonin. Hallucinogenic drugs are among the oldest known group of drugs used for their ability to alter human perception and mood. Effects of hallucinogens include perceptual distortion, increased heart rate, nausea, weaknesses and hearing, touching and seeing things that don’t exist. The effects of hallucinogens take place within half an hour and last for several hours. Depressants are a group of drugs which temporarily diminish the function or activity of a specific part of the body or mind. Depressants are described as psychoactive drugs that slow down one’s Central Nervous System (CNS), thus they are referred to as â€Å"downers†. These types of drugs are used as prescribed medication as well as illicit substances and can be dangerous. Depressants include alcohol, barbiturates and tranquillizers. Barbiturates and benzodiazepines are the two major categories of depressants used as medicine. Benzodiazepines that are commonly used such as Diazepam (Valium) and Chlordiazepoxide (Librium) were developed as a safe alternative to barbiturates to treat insomnia and anxiety but are now a major category of abused drugs. The prolonged use of these drugs can result in tolerance. In addition, the sudden withdrawal from these drugs by habitual users may result in physical withdrawal symptoms such as insomnia, nausea, headaches, weakness and blood pressure drops. This may consequently lead to a coma and or death. Drugs which alter behavior could be categorized as stimulants, hallucinogens and depressants. The use of each type of drug results in an alteration of the Central Nervous System. Stimulants tend to affect the Central Nervous System by stimulating ones brain hence altering ones behavior. Hallucinogens are known to distort one’s senses by causing changes in perception, thought, and emotion. On the other hand, depressants have the opposite effect of stimulants. Depressants tend to temporarily slow down the function or activity of a particular part of the mind or body. Although some types of these drugs are acquired legally, they are often abused.

Dow Chemical Case

Dow Chemical Case Question 1 Polyethylene is the world’s most widely used plastic. Polyethylene plastic’s principal application was in packaging, from trash bags to milk jugs. It was widely used in the manufacture of everything from trash bags, picnic cutlery and garbage pails, to plastic toys. Polyethylene also replaced glass, wood, and metal in certain applications. There were three types of polyethylene, Low-density polyethylene, High density polyethylene and Low linear density polyethylene. Polyethylene produced from ethylene. Ethylene is produced from oil or natural gas. Ethylene plants separated either naphtha molecules (derived from crude oil) or ethane molecules (derived from natural gas). The ethylene derived from this process was used to produce polyethylene. The critical success factors in this business were capital intensive and economies of scale. Polyethylene was a global commodity product and pricing worldwide typically fell into a narrow band. The demand for polyethylene was large because it was the world’s most widely used plastic and polyethylene customers were typically small and medium-sized plastic processing companies. The big Risks in the industry: * The raw material risk – Cracking naphtha (the raw material derived from crude oil) required much more energy, manufacturing intensity, and equipment than cracking ethane (derived from natural gas). Supply of primary materials and electricity are crucial to success of polyethylene production. * Cost risk – large plant sizes and the need for economies of scale rendered the ethylene industry highly capital intensive. A plant for cracking ethane was estimated to hundreds of millions and the cost for a plant for cracking naphtha is double. Capacity additions or reductions could significantly affect balance of supply and demand, influencing capacity utilization rates, prices, and profit margins. * Ethylene profitability was tightly links to its global operating rate. The ethylene business links to oil companies, governments, pure chemical companies, conglomerates, private investors, and joint ventures. * Competition of polyethylene industry in Argentina and in the global market. The government operator was directly or indirectly financing capital – intensive ethylene plants in order to stimulate downstream business. Some of countries, the government contribute the investment. * The margins for producers of ethylene and first-order derivatives (mostly plastics) were highly correlated because the producers for them were highly integrated. Question 2 The stages of the project: * Stage 1: involved taking control of PBB, which comprised the ethylene cracker and polyethylene plant, and then upgrading the facilities in order to make them internationally competitive * Stage 2: involved acquiring Polisur’s two polyethylene plants * Stage 3: involved building a new ethylene cracker and a polyethylene plant These three stages are closely related to each other. The next stage would be reached only if the previous stages achieved, and the followed stages ensure the success of the previous stages. Acquiring PBB offers Dow the opportunity to enter Argentina market, and this is the first step for Dow to take over control of Bahia Blanca’s polyethylene activities. Dow is bidding not only for PBB in the privatization, but also an overall plan for the development of Dow’s polyethylene business in Argentina. Dow will decide on the price to bid for PBB in the upcoming privatization, the price is based on the valuation of the entire project (stage 1, 2 and 3). The three stages are one big project. Dow’s bid for PBB should not be based solely on the value of Stage 1 of the project. Gaining control of PBB would be the first step in the project. But taking all the factors discussed above into consideration, Dow should value all the 3 stages in order to bid on the PBB project. Dow believed that it had the opportunity to become the number-one player in the Latin American polyethylene industry. To achieve this goal, Dow would also have to acquire Polisur’s two polyethylene plants (stage 2) and expand existing capacity. The expansion of its polyethylene capacity in Bahia Blanca would require the company to build a world-class competitive cracker (stage 3). Doing so would nearly triple PBB’s ethylene capacity. Therefore, Dow had to not only consider what to bid for PBB in the privatization, but also develop an overall plan for the development of Dow’s polyethylene business. Dow had to incorporate the terminal value of each stage of the project. Question 3: The followings are the arguments that support the acquisition of PBB: 1. The whole project will increase Dow shareholder’s wealth. As a public company, the first aim of the management team is to increase the shareholder wealth. The project proposed by the management team is definitely consistent with this goal. And bidding on the PBB is the first stage of the whole project. The exact increase in shareholders’ equity may be various at this point as it depends on lots of other factors ( we will discuss the risk of valuation thought the whole case. , but in general, the management team is confident in the future outlook. 2. The other important strategic purpose of acquiring PBB is that it is the first stage towards consolidating all Bahia Blanca’s polyethylene activity under Dow’s control. The 3-stage project will make Dow to be the leading company of polyethylene in Argentina, even in Latin America because of its MNC background. This will have a long term positive influence in Dow’s stock price as well as shareholders’ equity. 3. Also, as indicated in the case, the demand of polyethylene will increase in the next couple years. Argentina is an emerging market, which is facing a rapid transformation. Dow’s vice president anticipated continued improvement in standards of living, which will lead to increase demand for polyethylene in Argentina, as well as in Latin America. The expected growth in polyethylene demand made PBB a potentially attractive acquisition. 4. PBB right now is a government controlled complex which is going to privatize. For Dow, it is a perfect opportunity to build long term relationship with Argentina government. It will give Dow more opportunities in the market of Argentina and Latin America. Question 4: The followings are the mains risks of the project for Dow beyond the general industry risks discussed in Question 1: 1. Country risk. Argentina is an emerging market. It is widely agreed that when we estimate the risk of emerging market by using the traditional model like CAMP, the result also unfavorable. Some reasons are the market is highly concentrated and integrated. And also the country risk cannot be diversified. So it brings the uncertainty to Dow’s valuation. 2. Political risk. Political risk is part of country risk. It is identified as the potentially adverse impact a country’s environment has on a firm’s future cash flows. And it will affect Dow’s future expected returns and valuation measures. If there is some major political unrest in Argentina, the government expropriates PBB, Dow will face a significant loss. Also, if the Argentina government default on its debt, Dow would face the bad debt which is an huge cost and will drag down the expected cash flows. 3. Economics risk The privatization in Argentina was the progress to control the fiscal problems, like hyperinflation, stagflation and huge fiscal deficits. As an emerging country, Argentina had not developed a healthy financial market within the country. The unstable economy would lead to a huge possibility of default. Another possible aspect was the economics risk of the world. If there was an economics downturn, the huge investment of the project would worth less and Dow will facing difficulties to rise equity to finance the project. 4. Unexpected risk: (1) Unexpected shortage of energy. The industry is really energy intensive. If there is a energy shortage such as the decreased supply of oil, the whole project will face negative return. (2) Unexpected rise in variable cost, such as transportation cost. The unexpected rise in variable cost will have negative impact on Dow’s cash flow. The decrease of expected cash flow will lead the decrease value of the project. (3) There are 3 stages of the whole project. If one of them did not work well, the overall goal will be affected and the whole project would have the risk of failure. Question 5: Given in the case that Dow’s cost of capital for similar U. S. based projects is 10%, thus we chose to use NPV to evaluate the different stages of the project, by discounting each year’s expected cash flow (Exhibit 9, 10 & 11) to the base year-1995. Stage 1 Valuation Given in the case, Dow is bidding on the sale of 51% of PBB, therefore, if we calculate the Present Value of the cash flow, Dow should get 51%. Dow’s total investments for PBB Ethylene cracker and PBB Polyethylene cracker between 1996 and 2000 are $128. 9 million and $28 million in Exhibit 7 from the case. If we compare these figures with Exhibit 9A & 9B investment numbers between 1996 and 2000, they are the same (shown in Table 1); this means that the cash flow of PBB in exhibit 9A is the cash flow after only deducting the investment from Dow. So, we add back Dow’s investment to get the actual cash flow of PBB. Since Dow’s share in PBB is 51%, it gets 51% of PBB’s cash flow and we discount the cash flow. Next we calculate the sum of Present Value of Dow’s investment in each year, and subtract it from Dow’s 51% share in PBB. This number reflects the actual net cash flow been distributed to Dow. The followings summarize the steps of the thinking process: Step 1: Add back Dow’s investment to PBB’s cash flow, this gives the total future cash flow to be distributed among Dow (Dow owns 51% of PBB) and other owners. Step 2: Find the PV of total future cash flows Step 3: Distribute the 51% of the PV of total future cash flow to Dow Step 4: Deduct PV of Dow’s investment from Step 3 The value of Stage 1 is $345. 71 million as shown in Table 2. Stage 2 Valuation In Stage 2, we took polyethylene CFs directly from Exhibit 10, and discount them by appropriate discount rate, and summing up these PV of the cash flows we get the value of Stage 2, $399. 76 million. Another point worth mentioning is the calculation of the terminal value in 2010. Given in the case, the growth is 3. % constant for the project, we took the cash flow in 2010, which is $82 million; multiplied it by (1+g)/(k-g), and discounted it by 16 years to get the present value. Stage 3 Valuation Stage 3 involves building a new ethylene cracker and a polyethylene plant. We summed up the total cash flows of them and find PV of the cash flows in each year. The total of all the PV of the cash flows is the value of Stage 3, $ 993. 69 mill ion shown in Table 4. Now we have the value for each stage, and we get the total of the project, it is worth $1739. 16 million with the value of Stage 1, Stage 2 and Stage 3 are $345. 1 million, $399. 763 million and $993. 690 million respectively, under the assumption that each stage is successful just like Dow has planned. Question 6: There are two ways to do Discounted Cash Flow analysis in an international context. We can adjust the discount rate by adding a country’s political risk premium or, adjust the cash flow of the project. In this question, we will discuss the appropriate method of the project’s discount rate. In a country, the higher risk that investors perceived, the higher discount rate that should be applied to the project’s cash flows. The risks we are talking about are not diversifiable. Since November 1995, the Convertibility Law tied the peso to the U. S. dollar, even thought the market thinks the fixed exchange rate would last for several years, but as the executives of Dow, Virgnar and Marcer need to consider the possibility of future crises. Uncertainty about future currency thus will increase the discount rate of project in Argentina, which means that Dow’s cost of capital is increased. Possible impact of government policies relevant to foreign investments is another issue, example increased tax rate. This will leave Dow with a lower investment return than before. In practice it is often difficult to quantify the likelihood and impact of political risk on international investments; given US and Argentine Yields in the case, we can adjust the discount rate by adding the sovereign yield spread between U. S. and Argentina. The idea is that the bond spreads between two countries with same maturity reflects country risk. The country with the higher yield in this case is Argentina; it offers approximately 10% more than the U. S’ yield shown in Exhibit 12. The reason behind that is Argentina has a higher country risk than U. S. , so it has to offer a higher yield in order to compensate the investors for taking additional risks. Therefore Dow should take these additional risks into consideration when evaluating the project. The adjusted discount rate for the project should be 20%, 10% ( cost of capital for similar U. S projects from Q5) + 10% (Argentina’s country risk) and this change in the discount rate will have a big impact on the value of each stage in the project which we will examine later. There are two major advantages of adjusting the discount rate by adding the sovereign yield spread. One of the advantages is the countries’ bond yields are easy to find, observe and access, investors can easily calculate the country risk by subtracting the two bond yields. Another advantage is that the yield of bond is forward-looking, it does not only incorporate today’s condition, also the yield reflects the market’s future expectation of a country’s risk and return so it is a good representation of cost of equity in a particular country. Salomon Smith Barney model is similar to the model that we just described, but with additional inputs and refinements. If we have more information from S&P country sovereign ratings, country ratings, and macro variables, we could adjust discount rate for the project more accurately. Furthermore, the political risk premium that we can add to the discount rate can be scaled up or down based on subjective scores for Dow’s access to capital, susceptibility of the project investment to Argentina’s political risk and the importance of the investment for Dow. Therefore, the more relevant information we have, the more accurate discount rate we can construct to help evaluate the project. Question 7 The calculation process for is basically the same as in question 5, except here we use the cost of capital 20% instead of 10% to discount expected cash flow. Calculation shows in Table 5 (in Million U$). The project worth is $464. 734 which about only 20% of the project value if it located in US. The largely decrease in project value is due to the higher country risk in Argentina than in the US. The higher country risk was reflected in the higher discount rates which lower the present value of the cash flow. In stage 1, the present value of expected cash flow (CFs) is 160. 32 which is 54% lower than the stage 1 value in question 5. The percentage of decrease is lower than the total project value’s decrease, since most of the value in stage 1 was generate from early years cash flow. The country risk in the short run is lower than in the long run. Because in the long run there are more chances for uncertainty events to happened. In stage 2, the present value of CFs is 194. 81 and it is 51% lower than the project value in US which also less than the percentage decrease of the total project value. And this is due to the same reason as in stage 1. In stage 3, the value is $109. 837 which is 89% lower than the question 5’s value. The significant decreasing value is due to the value of stage 3 is mainly from terminal value. Since there are higher country risk and more uncertainty in the long run, stage 3’s long run cash flows ( include terminal value) are heavily discounted which lead to low present value. Question8 Dow should bid for PBB no matter the project is in US or Argentine, since the total project values and stage 1 values are both positive in these two countries. Because Dow is an American company, the shareholders care about the US returns. The Project cash flows and stage 1cash flows are discounted by the cost of capital in US and get positive present values, which mean the PPB will increase Dow’s shareholder wealth. To determining how much Dow should bid, the company should aware that there are some requirements made by the Argentina government. First, the government set the minimum accepted price is 150million U$, which is the lowest range for Dow’s bid. Second, the government requires the bidder to have a statement of net worth of at least 5 billion U$. While, Dow has two other competitors Copesul and Perez also want to bid PPB. However, Copesul only has net worth $929,538,000 and Perez has net worth $1,461,000,000. Even if Copesul and Perez combine to bid PPB, their total net worth around $2,391,000,000 will be smaller than the $5 billion requirement. Therefore, Dow should not been threatened by Copesul and Perez’s bid, and they should not affect Dow’s biding strategy. Therefore, for the bidding price: Value of the bid= Value of (stage 1+2+3)-cost of PBB- cost of Polisur The cost of stage 3 is already included in the value of stage 3. In question 3, we obtain the Value of (stage 1+2+3) equal to$464. 734 million. Since the Value of the bid>0, then cost of (PBB+ Polisur) < $464. 734million According to the government requirement, Dow could bid PBB for $150 million, then their higher range for Dow’s bid should be $ 314. 734 million ($464. 734million- $150 million). Table 1: Table 2: Table 3: Table 4: Table 5: