UNIT 3 - FOREIGN INVESTMENT DECISIONS PART 2 Unit 3 - Foreign Investment Decisions Part 2



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.

Discount rate=

13%

Year

1

2

3

3

FCF (million CZK)

38.63

44.33

50.48

375.00

PV Factor

0.884956

0.783147

0.69305

0.69305

= (1+ 13.%)^1

= (1+ 13.%)^2

= (1+ 13.%)^3

= (1+ 13.%)^3

Discounted cash flow (CZK)

34.186

34.717

34.985

259.894

=0.884956x38.63

=0.783147x44.33

=0.69305x50.48

=0.69305x375

Value of the firm=

363.782

CZK

Debt/Equity=1:1

Equity / value of firm=

0.5

value of equity=

181.891

million CZK

Number of shares=

1

million

So value/share=

181.890

CZK

=181.891/1

Current market price per share=

185

CZK

Hence fair value premium above market=

1.710%

=(185-181.89)/181.89

As fair value premium over market

1.710%

is less than 20%, ...