Foreign Investment Decisions
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I really need some help with this one. The problem starts out stating that Acme is considering the acquisition of a firm in the Czech Republic. It plans to operate the firm for 3 years and then reevaluate the holding.
Free Cash flows were estimated as follows:
Year 1 - 38.63M Czech Koruna (CZK), Year 2 - 44.33 M CZK,
Year 3 - 50.48M CZK
The third year terminal value is estimated at 375M CZK.
The Czech Koruna's exchange rate is assumed to be .038 USD/CZK for each year. Acme uses a WACC of 13 % for its domestic projects. So, the PV of the FCF's for the firm is 363.78 M CZK or $13.82M. The Czech firm has 1,000,000 shares outstanding and a debt to equity ratio of 1:1. Current market price is 185 CZK per share.
All monetary information (except per share) should be presented in CZK millions ( do not convert to USD).
Should Acme make a deal if its policy is to never exceed a 20% premium in any tender offer? To defend my position, I must prepare and present an Excel template that includes the calculated fair value premium over market.
What changes in the analysis or additional analysis do I suggest before a final decision should be made?
Using the DCF methodology required in question 1, please take one of your suggestions and reevaluate the buy-out. To complete this question, I will have to present a second Excel template that includes my new assumed values and supports my recommendations. Further, I must comply with the following:
Assumptions must be reasonable - ex, don't select arbitrary values. Some discussion should be provided that explains how I arrived at your new assumed values.
Variable changes should be restricted to the discount rate, the FCFs, and/or the terminal value. Please present only one set of assumptions (do not submit a table that includes multiple values for the same variables.)
To help ensure that my values are unique, I must use a minimum of three significant (non-zero) digits to the right of the decimal point. I chose 248
I really need this broken down and explain to me so I can understand this. Thank you..
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