Effect of Enzyme Catalase on Hydrogen Peroxide

Effect of Enzyme Catalase on Hydrogen Peroxide Introduction In this experiment, I am going to determine the effect of different concentration of enzyme catalase on the rate of reaction of decomposition of hydrogen peroxide. Normally, hydrogen peroxide is produced naturally in human or plant cell. Hydrogen peroxide is the by-product of respiration. As an oxidizer, it will decompose to form oxygen and water. The chemical equation for the decomposition of hydrogen peroxide is 2 H2O2 → 2 H2O + O2. The reaction is speeded up by the presence of enzyme, namely catalase which is used in this experiment. This mechanism is important in living organisms cells and body system particularly in human. This is because the corrosive characteristic of hydrogen peroxide may damage the wall of liver where it is largely produced during cellular respiration process. When it is present in high concentration, it is an aggressive and powerful oxidizer, whereby it is unstable and also hazardous as it will corrode many substances including human skin. Therefore, concentration of hydrogen peroxide in the cell should be constantly regulated. When hydrogen peroxide is used for the purpose of experiment, this highly corrosive material should be kept in a container made up of non-reactive material such as glass. However, at low concentration, hydrogen peroxide can be used as disinfectant and antiseptic for medicinal uses. In this context, catalase, a teramer of four polypeptide chains is made up of over 500 amino acids long. It is also categorised as globular protein in which the polypeptide chain is highly folded into a compact spherical shape. There is also active site available to bind to the hydrogen peroxide substrate to form enzyme-substrate complex. It is further adapted with four porphyrin heme groups to react with hydrogen peroxide. Besides, the enzyme catalase is known to be one of the enzymes that possess a high turnover number. Its turnover number can be up to 600 000 whereby one molecule of enzyme catalase can catalyse the decomposition of 600 000 molecules of hydrogen peroxide to oxygen and water at body temperature. This reaction is known as catabolic reaction as the hydrogen peroxide molecule is broken down into oxygen and water which are comparatively smaller. Sometimes, catalase also uses hydrogen peroxide to oxidise toxins including Phenols, Formic Acid, Formaldehyde and Alcohols. I n this experiment, potato is chosen to be tested due to the presence of catalase in it. However, other organisms such as fungi or yeast can be used as well as they are producers of enzyme catalase. Enzyme is used to speed up the rate of reaction by lowering the activation energy of a reaction. Activation energy or free energy of activation, is the initial investment of energy for starting a reaction the energy required to contort the reactant molecules so the bond can break for a reaction to occur. Enzyme functions as biological catalyst in many chemical reactions that occur inside our body. For example, saliva secretes enzyme amylase which catalyses the hydrolysis of carbohydrates in the mouth. Not only does enzyme play an important role in maintaining efficient function of body system, it is largely used in industrial field as well to speed up the production rate. For example, protease is commonly used in biological detergent for domestic washing and rennin is used in manufacture of cheese. For an enzyme to carry out its function effectively, active site should present on the surface of the polypeptide chain. An active site is a groove or pocket formed by the folding pattern of the protein. This active site has particular chemical composition and electrical charges on the amino acids, which make up the specificity of the enzyme, in which it allows only certain substances to bind to it. When the substrates bind to the active site, here the working mechanism of enzyme starts. The binding of the substrate to the active site bring the substrates closer and thus aids in bond formation in anabolic reaction. In catabolic reaction, the active site may distort the shape of substrate to break its bond. When the products are formed, the substances no longer fit into the specific shape of the enzyme and will leave the active site of the enzyme. The enzyme is free to bind to another substrate and catalyse another reaction. The enzyme is not altered at the end of reaction. As enzyme contains specific shape and charge on its active site, its activity is easily affected by the changes in the surrounding conditions. Generally, different pH, temperature, concentration of substrate or concentration of enzyme has a large impact on its efficiency in carrying out its function. Whenever the changes in surrounding such as change in pH or temperature alter the bonding between the R group of the amino acids in the polypeptide chain which form the active site, the shape of active site will change and thus the substrate will no longer bind to the site. At this point, the enzyme is said to be denatured. On the other side, when the temperature or pH is optimum for the reaction, the rate of reaction is the highest. Although the optimum pH and temperature may vary from one another, optimum temperature for most enzymes functioning in human body system is often 37 Â °C. However, the presence of inhibitors or cofactors may alter the enzyme activity as well. In this experi ment, the effect of enzyme concentration is chosen to be investigated on the rate of reaction catalysed by enzyme catalase. An increase in enzyme concentration will increase the active site available and thus increase the rate of reaction until it reaches maximum velocity when all active sites of the enzyme molecules are engaged. Problem Statement: Do different concentrations of enzyme affect the rate of reaction? Objectives: To investigate the effect of different concentrations of catalase on the rate of reaction to catalyse the decomposition reaction of hydrogen peroxide To determine the presence of catalase on the rate of reaction of hydrogen peroxide. To develop effective experimental skills throughout the experiment Aim: To determine the effect of different concentrations of enzyme on the enzyme activity Hypothesis: The higher the concentration of enzyme, the higher the rate of reaction until a maximum velocity is reached. Techniques: Use a water displacement technique to determine the volume of oxygen gas evolved Calculate the rate of reaction by using the gradient of the graph Materials: Freshly mashed or blended potato, 3.0 % hydrogen peroxide solution, buffer solution (pH 6.5), distilled water Apparatus: Boiling tubes, graduated tubes, 500 ml beaker, weighing balance, spatula, delivery tube, stop watch, measuring cylinder, dropper, rubber bung, weighing dish Variables: Variable How the variable is determined 1. Manipulated Concentration of catalase By using different mass of blended potato at 1g, 2g, 3g and 4g. Different masses of blended potato indicate the difference in concentration of catalase in its content. 2. Responding The volume of oxygen gas released By recording down the reading on the graduated tubes at 30 seconds interval. 3. Constant pH Volume and Concentration of hydrogen peroxide By using buffer solutions at pH 6.8 throughout the experiments By using the same volume and concentration of hydrogen peroxide, which is 2.5cm3of 3.0 % hydrogen peroxide throughout the experiment Procedure: 1 g of the freshly prepared or blended potato is transferred into a boiling tube. 5 cm3 of buffer solution is added into the tube and it is swirled to mix the substrate. A graduated tube is filled with water to the brim. It is placed carefully into a beaker of water. One end of the delivery tube is placed into the graduated tube with the other end with rubber bung ready to fix with boiling tube. 2.5 cm3 of hydrogen peroxide solution is measured and it is added into the boiling tube containing the potato and buffer solution. The tube is immediately closed with a rubber bung connected to the delivery tube. A stopwatch is started by one member of the pairs in conducting this experiment. The volume of gas released is measured for every 30 seconds for 5 minutes or until the gas evolution stops. The experiment is repeated using 2g, 3g and 4g of freshly blended potato. The results obtained are recorded in a table. Graphs for volume of gas released against time is plotted for each concentration or amount of enzyme used. The initial rate of reaction for each concentrations of enzyme used are worked out. Discussion: Based on the above experiment, the effect of different concentrations of enzyme on the rate of reaction is successfully determined. Five graphs are plotted based on the results obtained in the experiment to show the data in a clearer way and provides a better mean for analysing. The results show that the rate of reaction is increased by an increase in enzyme concentration. In this experiment, potato is used as source of catalyse. The first four graphs showing oxygen gas evolved against time are drawn based on respective mass of blended potato used. The initial rate of reaction is measured from each graph by obtaining the gradient of the graph. A predicted line is drawn on each graph. Generally, the longer the time taken, the higher the volume of oxygen gas evolved. In the beginning, all graphs show an rapid increase , the speed is the slow down as some of the substrates are converted to products. For the substrate at 1 and 2 g of bended potato used, the maximum volume of oxygen gas e volved has reached within 300 seconds and a plateau is obtained. This is because the reaction has completed for all substrates. Theoretically, the maximum volume of oxygen gas released should takes a shorter time as compared to 1g and 2 g of potato as more active site are offered. However, In the 3 and 4 g of blended potato which react, the maximum volume of oxygen is unable to be obtained within 300 seconds. This is probably due to some errors conducted throughout the experiment, particularly due to the vigorous and rapid reaction and in the process of changing the graduated tube. The errors will be discussed later. The initial rate is taken because the rate of reaction is rapid as the collision between the substrate and enzyme is the highest. The rate of reaction may not be reliable to be compared between data if readings are taken in the middle of the experiment because some reactions have reached the maximum rate. The initial rate of reaction for hydrogen peroxide with 1g, 2g, 3 g and 4g of blended potatoes are 0.0611, 0.2895, 0.6579 and 0.7000 cm3/ s respectively. The initial rate of reactions for all the experiments are then compiled into the fifth graph. This shows a clearer picture on the effect of concentration of substrate on the rate of reaction. Initially, there is an increase in the rate of reaction when the mass of blended potato increases. This is because the increase in the concentration of enzyme offers more active site for the binding of substrate. Then, the slope of increasing line becomes less steep with further increase in concentration of enzyme. This is because the active site has been occupied by the substrates or it is said to be saturated whereby the increase in substrate has no further effect on the rate of reaction. Theoretically, the graph should reach a maximum velocity where the plateau occurs in the graph. However, in this experiment, the plateau is not shown because most probably the concentration of enzyme is not high enough to bind to all the 3.0 % of hydrogen peroxide substrate. However, throughout the experiment some errors might occur in which the real values may not be obtained. Firstly, there is a high tendency for the reading obtained from water displacement method to be inaccurate especially when the volume of oxygen gas evolved are too much that the first graduated tube is fully filled with oxygen gas and when the delivery tube has to be transferred to the next prior-prepared graduated tube. The delivery tube transferring process may consume some time particularly if a rubber delivery tube is used instead of a glass delivery tube. This will cause some of the oxygen gas to escape into the water during the process. Next, parallax error may occur as well when the reading is taken from the graduated tube on the volume of oxygen gas evolved. This is because oxygen gas is a colourless gas, in which its level is not so clearly seen on the calibration of the graduated tube. To minimise the errors, the experiment is repeated twice and the mean reading is obtai ned. To further increase the accuracy of the results, a piece of white paper can be placed behind the graduated tube to make the reading easier. Next, the possible error is greater if the experiment is carried out individually. This is due to the human limited ability to record the reading and at the same time watch over the time. Inaccuracy may arise. In this case, a pair work is preferred in this experiment as one of the members times and the other one record the readings obtained. Next, when the mashed potato is poured into the boiling tube from the weighing dish, some potato may be left in the weighing dish. To minimise this error, a few drops of distilled water can be used to rinse the weighing dish to ensure there is no residue left. Consequently, there are a few precautions that ought to be taken to increase the accuracy of the results obtained. For each experiment, the potato used must be freshly mashed or blended. If the potato is prepared in a container, the lid of the container should be kept closed after the desired mass of blended potato is scooped out for each and every experiment. The preparation of blended potato in a beaker which is exposed to the air should be prevented because oxidation will occur and this may affect the activity of enzyme catalase in it. Changes in surrounding such as temperature may also induce changes in the enzyme. A blended potato is used instead of discs of potato so that it will react easier. Its viscosity should be reduced so that it is easier to use. Next, hydrogen peroxide has to be stored in an opaque container as it breaks down quickly when exposed to light. The lid of the container that contains hydrogen peroxide solution should be kept closed after each desired sample i s taken out using a dropper as the oxygen in the surrounding air may oxidise its content and causes the results to be inaccurate. A buffer solution is used to ensure the pH is kept constant throughout the experiment. The buffer solution of citric acid sodium phosphate solution which has a pH of 6.8 is used because this is the optimum pH for the enzyme catalase. Furthermore, a water bath is preferable as the surrounding temperature may change throughout the experiment. In addition, as the rubber bung of the delivery tube should be of the same size as the boiling tube to ensure all the opening of the boiling tube containing enzyme and substrate is fit tightly, it should be pushed and twisted with care. It should also be checked from time to time to ensure there is no leakage of product in gaseous form to the surrounding. Besides, the other open end of delivery tube should be placed in water all the time for the bubble of gas to form and rise to its surface. The presence of air bubbles ensure that the rubber bung is still in contact with the boiling tube unless the substrate and enzyme has completely reacted. To fix the graduated tube in place, a retort stand and clamp can be used. Besides, the boiling tube containing reactants and enzyme ought to be swirled throughout the experiment to ensure the substrate and enzyme react. This may increase the rate of collision between the reactants and enzymes and thus fasten the time taken for the reaction to complete. Throughout the experiment, some safety measures should be abided by. As the substrate used in this experiment which is hydrogen peroxide is highly corrosive, rubber glove should be used to protect the skin. After the hydrogen peroxide is used, it should be disposed off and not to be returned to stock bottles as any contaminants may result in decomposition and explosion may occur. The blended potatoes have to be handled carefully as well as it will irritate some peoples skin. A lab coat should be put on. The glass wares and the delivery tube used should be handled carefully as they are fragile. Conclusion: The hypothesis is accepted. The presence of enzyme increases the rate of reaction of hydrogen peroxide. When the concentration of enzyme increases, the rate of reaction increases until a maximum velocity is reached. Limitations: The species of potato Different species of potato may contain various concentration sof catalase The age of potato An older potato may have lower concentration of catalase The freshness of potato The concentration of catalase may vary in different potatoes which are stored in different ways before experiment. Storage at high temperature may cause the enzyme to denature Part of potato used Different parts on the potato may have different amount of catalase. Further Work: The effect of temperature on the enzyme activity The effect of different concentrations of substrate on the enzyme activity The effect of pH on the enzyme activity The effect of concentrations of enzyme on activity of other type of enzyme such as amylase on starch The effect on the rate of reaction of hydrogen peroxide by using different concentration of fungi as the source of catalase

The Maturation of Charlotte Brontes Jane Eyre :: Jane Eyre Essays Bronte

The overriding theme of Jane Eyre, is Jane's continual quest for love. Jane searches for love and acceptance through the five settings in which she lives: Gateshead, Lowood, Thornfield, Moor House, and Ferndean. Through these viewpoints, the maturation and self-recognition of Jane becomes evident, as well as traceable. It is not until Jane flees from Rochester and Thornfield, and spends time at Moor House, that her maturation to womanhood is complete. At this point, Jane is able to finally return to Rochester as an independent woman, fully aware of her desire to love, as well as to be loved. From the onset of the novel, we see the world through the eyes of Jane; a strong character who wishes to overcome her birth rite as an orphan in Victorian times. From this viewpoint, we are able to trace how Jane progresses in her struggle for individuality, as well as for love. At Gateshead, it becomes apparent that Jane is terrifically self-willed and possessive of a fiery temper. An example of this is when Jane stands up to her aunt saying, "You think I have no feelings, and that I can do without one bit of love or kindness, but I cannot live so: and you have no pity" (Bronte, 68). Here, Jane makes her first declaration of independence, contending that she will no longer be a secondary member in the Reed household. At Lowood, Jane is repulsed by Mr. Blocklehurst and his "two-faced" character and coarseness. However, while at Lowood, Jane finds her first true friend in the form of Helen Burns, another student at the school. Helen teaches Jane of love in the form of religion. By means of instruction as well as by example, Helen is able to convey this message. When Jane is punished in front of the whole school, she tries to accept it as though it has some higher purpose. However, Jane still desires human affection and is deeply hurt when she is scorned. Jane goes as far as to say, "If others don't love me, I would rather die than live." Helen's response, "You think too much of the love of human beings," is a testament to her devout faith (Bronte, 101). When Helen is dying of Typhus later on in the story, she reminds Jane, "I believe: I have faith: I am going to God" (Bronte, 113). Jane is able to draw strength from Helen's faith, ultimately making her (Jane) stronger.

Aes Cost of Capital

International Capital Structure and the Cost of Capital Agenda 1 2 3 4 5 International Capital Structure and the Cost of Capital Analyzing Cost of Capital among Countries Cross Border Listing of Stocks International Asset Pricing Model (IAPM) The Financial Structure of Subsidiaries Case Analysis – AES Corporation 6 International Capital Structure and the Cost of Capital Your Logo International Capital Structure and the Cost of Capital †¢ Firms are becoming multinational in both scope AND in capital structure †¢ Fully integrated financial markets = the same cost of capital both domestically and abroad o If not, opportunity may exists to decrease cost of capital Cost of Capital †¢ The minimum rate of return an investment must generate to cover its financing cost †¢ Firms will undertake projects if the return is expected to exceed the cost of capital †¢ Return = Cost of Capital : value unchanged †¢ Return > Cost of Capital : firm’s value incre ases †¢ Return < Cost of Capital : bad investment Weighted Average Cost of Capital (K) †¢ When a firm has both debt and equity financing, weighted average cost of capital: K = (1-? )K+ ? (1- t)i K = (1-? )KL + ? i(1- t) †¢ (1- ? = weight of cost of capital that is from equity †¢ KL = cost of equity capital †¢ ? = debt-to-total-market-value ratio (weight of total cost of capital that is from debt) †¢ i = before-tax cost of debt capital (borrowing) †¢ t = marginal corporate income tax rate o Interest payments are tax deductible K = (1-? )KL + ? i(1- t) †¢ (1- ? ) = weight of cost of capital that is from equity †¢ KL = cost of equity capital †¢ ? = debt-to-total-market-value ratio (weight of total cost of capital that is from debt) †¢ i = before-tax cost of debt capital (borrowing) †¢ t = marginal corporate income tax rate o Interest payments are tax deductible K = (1-? )KL + ? i(1- t) †¢ (1- ? ) = weight of cost of capit al that is from equity †¢ KL = cost of equity capital †¢ ? = debt-to-total-market-value ratio (weight of total cost of capital that is from debt) †¢ i = before-tax cost of debt capital (borrowing) †¢ t = marginal corporate income tax rate o Interest payments are tax deductible K = (1-? )KL + ? i(1- t) †¢ (1- ? ) = weight of cost of capital that is from equity †¢ KL = cost of equity capital †¢ ? = debt-to-total-market-value ratio (weight of total cost of capital that is from debt) †¢ i = before-tax cost of debt capital (borrowing) †¢ t = marginal corporate income tax rate o Interest payments are tax deductible K = (1-? )KL + ? i(1- t) †¢ (1- ? ) = weight of cost of capital that is from equity †¢ KL = cost of equity capital †¢ ? = debt-to-total-market-value ratio (weight of total cost of capital that is from debt) †¢ i = before-tax cost of debt capital (borrowing) †¢ t = marginal corporate income tax rate o Interest payments are tax deductible Example †¢ K = (1-? )KL + ? (1- t)i o Company is financing 30% of capital by debt (? ) ? So they’re financing 70% (1-0. 30) by equity (1-? ) †¢ Cost of equity capital is 10% †¢ Before-tax cost of borrowing is 6% †¢ Marginal corporate tax rate is 15% K = (0. 0)0. 10 + 0. 30(1-0. 15)0. 06 Example †¢ K = (1-? )KL + ? (1- t)i o Company is financing 30% of capital by debt (? ) ? So they’re financing 70% (1-0. 30) by equity (1-? ) †¢ Cost of equity capital is 10% †¢ Before-tax cost of borrowing is 6% †¢ Marginal corporate tax rate is 15% K = (0. 70)0. 10 + 0. 30(1-0. 15)0. 06 Example †¢ K = (1-? )KL + ? (1- t)i o Company is financing 30% of capital by debt (? ) ? So they’re financing 70% (1-0. 30) by equity (1-? ) †¢ Cost of equity capital is 10% †¢ Before-tax cost of borrowing is 6% †¢ Marginal corporate tax rate is 15% K = (0. 70)0. 10 + 0. 30(1-0. 15)0. 06 Example K = (1-? )KL + ? (1- t)i o Company is financing 30% of capital by debt (? ) ? So they’re financing 70% (1-0. 30) by equity (1-? ) †¢ Cost of equity capital is 10% †¢ Before-tax cost of borrowing is 6% †¢ Marginal corporate tax rate is 15% K = (0. 70)0. 10 + 0. 30(1-0. 15)0. 06 Example †¢ K = (1-? )KL + ? (1- t)i o Company is financing 30% of capital by debt (? ) ? So they’re financing 70% (1-0. 30) by equity (1-? ) †¢ Cost of equity capital is 10% †¢ Before-tax cost of borrowing is 6% †¢ Marginal corporate tax rate is 15% K = (0. 70)0. 10 + 0. 30(1-0. 15)0. 06 Example †¢ K = (1-? )KL + ? (1- t)i o Company s financing 30% of capital by debt (? ) ? So they’re financing 70% (1-0. 30) by equity (1-? ) †¢ Cost of equity capital is 10% †¢ Before-tax cost of borrowing is 6% †¢ Marginal corporate tax rate is 15% K = (0. 70)0. 10 + 0. 30(1-0. 15)0. 06 K = 8. 53% Minimizing weighted average cost of capital(WACC) †¢ Lowest WAC C is obtained when the optimal combination of debt and equity are used †¢ Increases # of profitable capital expenditures o Firm value is increased as long as the return on new projects exceeds the firm’s WACC †¢ Internationalizing the firm’s capital structure helps to decrease the cost of capital Firm’s Investment Decision and the Cost of Capital †¢ A firm that can reduce it's cost of capital will be able to increase the profitable capital expenditures that they can invest in †¢ This results in increasing shareholder wealth †¢ We can do this by internationalizing our cost of capital Factors that affect the WACC Controllable Uncontrollable †¢1 Capital structure policy Proportion of debt and equity †¢ Interest rates Increases cost of debt, may indirectly increase cost of equity †¢ Investment Policy Degree of risk associated with new projects †¢ Tax rates Increase in corporate tax rate decreases cost of debt decreases WA CC Economic conditions Ie. Financial crisis of 2007/2008 Calculating the firm’s equity cost of capital Usually estimated using the Capital Asset Pricing Model (CAPM): †¢ Ri = Rf + ? (Rm – Rf) †¢ Ri: Expected return of security I †¢ Rf: Risk-free interest rate †¢ ? : measures volatility of security i compared to the market portfolio †¢ Rm: Market portfolio Cost of capital in segmented vs. integrated markets †¢ Ri = Rf + ? (Rm – Rf) †¢ In segmented markets, Rm is usually proxied by the S for the United States †¢ In integrated markets, Rm can be proxied using the MSCI World index Cost of capital in segmented vs. ntegrated markets†¦ continued †¢ Same future cash flows are likely to be priced differently in different countries in segmented markets, why? o ? is measured against the domestic market portfolio a this differs from country to country †¢ In fully integrated markets, same future cash flows will be priced the same as ? is now measured against the same world market portfolio Analyzing Cost of Capital among Countries Your Logo Does the Cost of Capital Differ among countries? ? Researches suggest that although international financial markets are not segmented anymore, they are still not fully integrated ? The empirical evidence is not clear-cut If the international financial markets = less than fully integrated, then there can be systematic differences To illustrate that capital markets are less than fully integrated, McCauley and Zimmer (1994) provided a direct comparison of the cost of capital among the 4 major countries: Germany, Japan, UK and US Method: 1. estimate the cost of debt and equity capital 2. compute the cost of funds (weighted average cost of capital) – using capital structure in each country as the weight 3. compute the cost of capital in real terms after adjusting for the inflation rate Effective Real After-Tax Cost of Debt Cost of Equity Debt -to-Equity Value Ratios Real After-Tax Cost of Funds Example – Novo Industri †¢ Produces industrial enzymes and health care products †¢ 1970s, management decided to finance planned future growth of company by entering international capital markets †¢ Danish stock market was small and illiquid – company needed to internationalize †¢ Novo management felt they were facing a higher cost of capital than competitors because of the segmented nature of the Danish stock market Example – Novo Industri Went international by: Increased transparency by presenting financial and technical statements in Danish and English †¢ Cross-listed on the London Stock Exchange, †¢ Listed ADRs (so that US investors can invest in US dollars rather than Danish) The Result: †¢ Novo Industri’s stock price increased while other Danish stocks didn’t Implications of the example Firms operating in small, segmented domestic capital market can gain access to new capit al and lower the cost of capital by listing their stocks on large, liquid capital markets like the New York and London Stock Exchanges. Cross border listing of stocks Your Logo Cross-Border Listings of Stocks †¢ Firms can potentially benefit from crossborder listings †¢ Why? o Gain access to additional sources of capital while lowering cost of capital by increasing investor base o Increase in stock prices due to more demand and trading of the stock Cross-Border Listings of Stocks †¢ Firms seem to prefer to list in neighbouring markets †¢ Why? o Similarities in markets o A â€Å"home bias† Cross-Border Listings of Stocks †¢ Generally, o Potentially expand investor base, which leads to a higher stock price and lower cost of capital lower transaction costs ? improvement in quality and quantity of firm specific information available to investors o Creates a secondary market for the company’s shares and facilitates raising new capital in foreign mar kets liquidity of a company’s stock o Enhance Cross-Border Listings of Stocks †¢ Generally, o Enhances the visibility of the company and it’s products in foreign markets shares may be used as the â€Å"acquisition currency† for taking over foreign companies o Cross-listed o May improve the company’s corporate governance and transparency Cross-Border Listings of Stocks May improve the company’s corporate governance and transparency† †¢ Once companies cross-lists its shares on foreign exchanges (NYSE, LSE), they are required to follow strong disclosure and listing requirements †¢ On average, foreign companies listed on U. S. exchanges are valued ~17% higher Cross-Border Listings of Stocks †¢ Disadvantages o Meeting disclosure and listing requirements can be costly (U. S. GAAP) in overseas markets o Volatility o Foreigners may take a controlling interest in the company and challenge domestic control International Asset Pricin g Model IAPM Your Logo IAPM For understanding the effects of international cross-listings. †¢ assuming cross-listed assets are internationally tradable assets and internationally nontradable assets. IAPM †¢ CAPM: Ri=Rf+(RM-Rf)Bi Bi = Cov(Ri , RM)/Var(RM) =; Ri=Rf+[(RM-Rf)/Var(RM)]Cov(Ri,RM) AMM risk-aversion: Y*=[E(r)-rf]/(A? 2)  » AM is a measure of aggregate risk aversion  » M is aggregate market value of market portfolio =; Ri=Rf+ AMM Cov(Ri,RM) IAPM †¢ Asset pricing mechanism under: †¢ Complete integration – assets are trade internationally according to world systematic risk Complete segmentation – assets are trade respected to country systematic risk. Suppose two countries: Domestic Country and Foreign Country †¢ IAPM Complete Segmentation †¢1 Domestic Country E(R): †¢ Foreign Country E(R): Rg = Rf + AFF Cov (Rg , RF) Ri = Rf + ADD Cov (Ri , RD) Complete Integration Both Domestic and Foreign: Ri = Rf + AwW Cov (Ri , RW) In re alty, assets are priced as partially integrated world financial markets IAPM Partially Integrated World Financial Markets †¢ Internationally tradable assets are priced as if world financial markets were completely integrated †¢ Non-tradable assets will be priced by world systematic risk (pricing spillover effect) and a country-specific systematic risk. o o Spillover effect – externalities of economic activity or processes those who are not directly involved in it. Pollution, technology, even financial markets IAPM Nontradable assets of the domestic country: Ri=Rf+ AwW Cov*(Ri,RW)+ ADD [Cov(Ri , RD)- Cov*(Ri , RD)] Cov* (Ri , RW) Indirect world systematic risk Cov*(Ri,RW) is the indirect covariance between the ith nontradable asset and world market portfolio. Cov(Ri , RD)- Cov* (Ri , RD) Poor domestic systematic risk Cov*(Ri , RD) is indirect covariance between the future returns on the ith non-tradable asset and domestic country’s market portfolio that is ind uced by tradable assets. IAPM implications: 1. International listing (trading) of assets in otherwise segmented markets directly integrates international capital market by making these asset tradable. 2. Firms with non-tradable assets get free ride from firms with tradable assets in sense that former indirectly benefit from international integration in terms of a lower cost of capital and higher asset prices. Effect of Foreign Equity Ownership Restrictions †¢ Restrictions on maximum % ownership of local firms by foreigners †¢ Mexico and India: limited to 49% †¢ Two different classes of equity Chinese firms issue A shares and B shares †¢ Ensuring domestic control of local firms Pricing-to-market (PTM) phenomenon †¢ Constraint is effective in limiting desired foreign ownership eg. Korean firm’s restriction on foreigners is 20% Foreigners want to buy 30% †¢ Foreign and domestic investors may face different market share prices Asset Pricing under For eign Ownership Restrictions †¢ A firm’s cost of capital depends on which investors, domestic or foreign, supply capital. †¢ A firm can reduce its cost of capital by internationalizing its ownership structure. An Example of Foreign Ownership Restrictions: Nestle †¢ Nestle used to issue two different classes of common stock: – Bearer shares: foreigners – Registered shares: Swiss citizens – The bearer stock was more expensive. Nestle An Example of Foreign Ownership Restrictions: Nestle †¢ On November 17, 1988, Nestle lifted restrictions imposed on foreigners, allowing them to hold registered shares as well as bearer shares. †¢ A major transfer of wealth from foreign shareholders to Swiss shareholders. †¢ The total value of Nestle increased substantially when it internationalized its ownership structure. †¢ Nestle’s cost of capital therefore declined. An Example of Foreign Ownership Restrictions: Nestle †¢ The Ne stle episode illustrates: – The importance of considering market imperfections – The peril of political risk – The benefits to the firm of internationalizing its ownership structure The Financial Structure of Subsidiaries Your Logo The Financial Structure of Subsidiaries Three different approaches to determining: 1. Conform to the parent company’s norm – where the parent company is fully responsible for the subsidiary’s financial obligations – not necessarily consistent with minimizing the parent’s overall cost of capital The Financial Structure of Subsidiaries Three different approaches to determining: 2. Conform to the local norm of the country where the subsidiary operates – When the parent company is willing to let its subsidiary default, or the guarantee of obligations becomes difficult to enforce across national borders – Not the optimal one approach (immature nature of local financial markets) The Financial Structure of Subsidiaries Three different approaches to determining: 3. Vary judiciously to capitalize on opportunities to reduce financing costs and risks – Most reasonable and consistent with minimizing firm’s overall cost of capital – Take advantage of subsidized loans Taxes deduction of interest payment – Take advantage of various market imperfections (ex. political risks) CASE: Globalizing the Cost of Capital and Cost Budgeting at AES BRIEF BACKGROUND AES Originally Applied Energy Services †¢ Founded in 1981 †¢ Publically traded since 1991 †¢ In 2003 – Leading independent supplier of electricity in the world – $33 Billion in asset (eg. Power plants, generation facility, other energy related businesses) stretched across 30 countries and 5 continents AES Early Success †¢ †¢ †¢ †¢ †¢ 1983: 1st cogeneration facility is built in Houston, Texas 1988: Net income = $1. million 1991: AES goes public, net income = $42. 6 million 1991-1992: AES initiates international expansion 1996-1998: estimated 80%-85% capital investment is overseas †¢ 2000: Revenue = $4. 958 billion Net Income = $778 million AES Typical Investment Structure AES AES stock price (market cap in 2000 reached $28 billion @ $70/share) AES AES stock price (market cap in 2002 fell 95% to $1. 6 billion @ $1/share AES What Happened? †¢ It's recipe for success (international exposure) became their recipe for disaster o Much of AES' expansion took place in developing countries (there was more unmet demand vs. eveloped countries) †¢ Main factors: o Devaluation of key South American currencies ? Argentine, Brazilian, Venezuelan currency crises o Adverse changes in energy regulatory requirements ? Government mandated energy rationing and competition o Decline in energy commodity prices AES AES ISSUES AES Simple Domestic Finance Framework †¢ 12% discount rate was used for all contract generation projects o al l dividend flows from projects were deemed equally risky ? fair assumption because businesses had similar capital structures o most risks could be hedged in the domestic market AES Same Model was Exported Overseas Worked well initially, when they first expanded to Northern Ireland o had many of the same characteristics as domestic projects †¢ Model became increasingly strained in Brazil and Argentina o Hedging key exposures was not feasible (currency, regulatory.. ) AES SO†¦ AES needed of a methodology for calculating Solution by AES valuation & cost of capital for capital budgeting at AES businesses in diverse locations around the world AES How did AES deal with it? †¢ Rob Venerus, director of Corporate Analysis & Planning questioned whether the traditional CAPM would suffice †¢ He did not advocate the use of a world CAPM o AES owned businesses in poorly integrated capital markets Countries such as Tanzania and Georgia did not have any meaningful capital markets †¢ He did not advocate the use a local CAPM either o AES How did AES deal with it? †¢ So Rob Venerus developed a new model: Step 1 †¢ Calculate the cost of equity using U. S. market data for each of AES' projects o Average the unlevered equity betas from comparable U. S. companies o Relever the beta to reflect the capital structure of each of AES' projects o Cost of equity = Rf + ? (Rm – Rf) AES How did AES deal with it? Step 2 †¢ Calculate the cost of debt by adding the U. S. risk free rate and a â€Å"default spread† o Cost of Debt = Rf + Default Spread o The â€Å"default spread† is based on the relationship between EBIT ratios for comparable companies and their cost of debt. AES AES How did AES deal with it? Step 3 †¢ Add the sovereign spread to both the cost of equity and the cost of debt o this accounts for country-specific market risk, which is the difference between local government bond yields and corresponding U. S. Treasury y ields. †¢ These steps allow AES to calculate a WACC that reflects the systematic risk associated with each project in its local market. AES AES How did AES deal with it? BUT†¦ †¢ Most of these local markets are developing markets where â€Å"access to capital was limited and information less than perfect† –> project-specific risk could not be diversified away †¢ â€Å"Project-specific risk† must be accounted for! AES How did AES deal with it? Example of project-specific risk: †¢ There are 2 hydro plants in Brazil that are identical in every aspect, except for the rivers that feed them. River #1 produces cash flows that vary +/50%, River #2 by +/- 10%. If they are financed by 100% equity, CAPM says they are worth the same. Rob Venerus thought this was unconvincing Seven types of â€Å"Project-specific risk†: 1. Operational/Technical 2. Counterparty credit/performance 3. Regulatory 7. Contractual Enforcement/Legal 4. Construction 5. Commodity 6. Currency Weights estimated from AES' ability to anticipate and mitigate risk. Then given a grade between 0 (lowest exposure) and 3 (highest exposure), multiplied by their weights to yield a â€Å"business-specific risk score† AES Example Risk Score Calculation for Lal Pir Project (Pakistan) Business-specific risk score Used to calculate an adjustment to the initial cost of capital o 0 = no adjustment to WACC o 1 = +500 basis points (5%) o 2 = +1000 basis points (10%) o 3 = +1500 basis points (15%) †¢ Overall (exhibit 8 from case): 1. calculate cost of equity and cost of debt using U. S. market data 2. add sovereign spread to each 3. calculate WACC 4. Add a business-specific risk adjustment to WACC SUGGESTION & RECOMMENDATION FOR AES CORPORATION Suggestion & Recommendation †¢ AES Corporation’s current method of valuing risk is clearly inadequate. Not enough risks were being considered in their model, especially political and economic risks in dev eloping countries that the company expanded to. Under this current model, country-specific risk is also difficult to measure. †¢ This new model to value cost and risk should be implemented by AES. – It gives the company a more realistic projection of the risks that they may face with projects that they take on internationally. – Risks such as political, economic, country-specific and business-specific risks are now considered, where in the previous model they were neglected. THE END THANK YOU! Your Logo

Canadian Decision Making Model For Personnel Selection

Running head: PERSONNEL SELECTION 1 The Canadian Decision Making Model for Personnel Selection Tiffany Leaf Walden University Author Note This paper was prepared for PSYC 8705, taught by Professor Dr. Leanna Parker PERSONNEL SELECTION 2 According to London and Bray 1980 as cited in Beresoff, (2003) although some situations may be constructed by the employer, the psychologist perceives and interprets the situation with restrictions that he or she believes contribute to an ethical practice. On the other hand, tests given for one†¦show more content†¦For instance, APA (2002) guidelines state that standard procedures in evaluations should include a clear explanation to the examinee of the evaluation process that include direct and honest answers to the test questions. Moreover, the psychologists obligations to the employer include providing accurate expectations for evaluative procedures, and respecting the employer s rights. On this basis, they are to provide high quality information for personnel decisions that are reliable and valid. The fact that the counselor did not catch the examinee in the act does not release him or her from the obligation to follow ethical procedures. For example, if the co unselor strongly suspects that the student is being dishonest, and the Civil Service Agency is his or her PERSONNEL SELECTION 3 client, a question emerges how will the counselor convey this information to the client without also engaging in dishonesty? Based on APA ethical guidelines the following guidelines apply: (a) Standard 5.01a states that psychologists do not knowingly make public statements that are false, deceptive, or fraudulent concerning their research, practice, or other work activities or those of persons or organizations with which they are affiliated.