The exercises below focus on the logic used in this chapter rather than on number crunching. You should try to solve them without using any of the analytical solutions from the text.

Suppose that company A's project has an NPV of 200 on its own, while company B can realize 100. The synergy gain is 200. There are no taxes, the financial markets are integrated, and A and B have equal bargaining strengths.

(a) How much of the total NPV (500) should go to A, and how much to B?

(b) To achieve this, what should the equity holdings be in a pure-equity JV?

(c) Suppose that A and B agree that A will receive licensing fees from the JV worth 80 (in present value).

i. How much of the total NPV (500) is left to be shared in proportion to the original cash inputs?

ii. Write down the equal-gains principle, and solve for (.

iii. Verify whether the synergy gains are shared equally.

(d) Suppose, instead, that A and B agree on a 50/50 joint venture. What is the present value of the licensing income or management fees that A must receive in order to accept this equity structure?