Acme is also considering the acquisition of a firm in the Czech Republic and would like your opinion on this. It plans to operate the firm for 3 years and then reevaluate the holding.
Free Cash flows are 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 (i.e., do not convert to USD).
1. Should Acme make a deal if its policy is to never exceed a 20% premium in any tender offer? To defend your position, you must prepare and present an Excel template that includes the calculated fair value premium over market.
2. What changes in the analysis or additional analysis do you suggest before a final decision should be made?
3. Using the DCF methodology required in question 1, please take one of your suggestions and reevaluate the buy-out. To complete this question, you will have to present a second Excel template that includes your new assumed values and supports your recommendations. Further, please comply with the following:
* Assumptions must be reasonable - i.e., don't select arbitrary values. Some discussion should be provided that explains how you 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 (e.g., do not submit a table that includes multiple values for the same variables.)
987 is the three significant (i.e., non-zero) digits to the right of the decimal point to be used.
This solution shows step-by-step calculations in an Excel file to analyze the deal policy and under what conditions should Acme make a deal.