Paginas Amarelas Essay

491 WordsMar 17, 20142 Pages
Goal -Calculate the WACC for international projects -Find the value of the 3 units within Paginas Amarelas Current Country Condition -Major changes in political and economical environments in past 5 to 10 years -Significant increase in international trade -High inflation environments, especially in Argentina and Brazil -Effect of Mexico Peso crisis on equity market and currencies in Latin America Methods -Use local parameters --Too many valuation problems -Use US proxy and adjust for country risk --Preferred method Valuation Problems -No local "pure-play" competitor --Beta cannot be easily calculated ---Mostly private companies; too small for comparison ---Cannot use Capital Structure comparisons ---Most companies owned other types of businesses -Cost of equity --Risk free rate for each country difficult to determine --Market risk premium (return on market minus risk free rate) questionable because local equity markets not efficient -Cost of debt --Do not issue debt internationally; rely on local markets for borrowing Formulas needed to solve case -Cost of Equity -Weighted Average Cost of Capital (WACC) -Total Value Key Assumptions -All 3 units sold to one buyer -No international debt taken on behalf of all 3 units -Telephone - directory industry shares the quantities of the following industries equally: --Direct marketing --Information services --Newspaper --Publishing / Paper --Radio stations -Cash flow estimates include --Future impact of changes in demand due to privatization: lower margin --Likelihood of government contract renewal --Lower costs due to synergies --Government's firm commitment to free markets, privatization, trade liberalization, and low inflation ---Prompted share increase in FDI and moderate economic growth Cash Flows -Use US$ for all 3 countries because highly inflationary currencies --Cash flows are projected in nominal local currency

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