Prince S.A.: valuation of a cross border joint-venture Essay

11. What is the Cost of Equity? ke = Risk Free Rate + (Beta X Risk Premium of 7.5% points). .03 + (.99 x .075) = 10.43%.

Central Embroidery needs to purchase a new monogram machine and is considering two options. The first machine costs $100,000 and is expected to last 5 years, and the second machine costs $160,000 and is expected to last 8 years. Assume that the opportunity cost of capital is 8 percent. Which machine should Central Embroidery purchase?

should be the cost of capital and would like to determine it. You will assist in the process of

This is an important valuation method used to estimate the desirability of an investment opportunity. Discounted cash flow (DCF) analysis uses future free cash flow projections and discounts them (using the weighted average cost of capital) to arrive at a present value. The calculated present value is then used to evaluate the potential for investment. For this project, the DCF analysis will be used to evaluate the intrinsic value of the CVS health corporation (“DCF,” n.d.).

D. Using information in the restated financial statements in ex 6.31-6.33, the financial ratios in ex 6.34 and the information provided in this case, as a commercial banker,

book DD&A (line 9), taxes (lines 11-14), Non-cash charges (line 16), and terminal value (line 20). Although one might quibble with some details, I find the exhibits properly represent the free cash flows suitable

* We assume the cost of capital to be a stated annual rate to facilitate calculations;

There is a great chance that the deal would take place. Even though the cash flows from the Joint Venture will be roughly the same for both Jersey and Prince, except for the assistance fee, the fact that they are subject to different Cost of Capital leads to a big difference in their valuation for the joint venture. As Prince is a family-owned company, Mr. Nakit’s cost of capital is significantly higher than that of Jersey, which is a well-diversified company, which means the 50% of the joint venture would be worth more for Jersey than for Prince. After our valuation, we think Prince will accept for anything above 3.105 million dinars. And Jersey would be willing to pay

3) What is the weighted average cost of capital and why is it important to estimate it? Is the

Due to internationalization these companies have been able to spread their risk. Therefore, if one market is not performing they can rely on the other (diversification)

1a. Please use the capital asset pricing model to estimate the cost of equity. At the date of the case, the 74 over T-bonds. Which beta, risk-free rate, and risk premium did you use? Why? Financing Components Debt Equity Market Values Weight Cost of Capital (After Tax) $ 6,823,736,197 0.85 3.72% $ 1,176,263,803 0.15 28.18% Total: $ 8,000,000,000 1.00 WACC WACC Inputs: Beta: Risk-Free Rate: Market Risk Premium: Pre-tax Cost of Debt: Income Tax Rate:

3) Based on the data in Exhibit 7 and the definition of operating income gains given

* Please choose either the CAPM estimate or the DDM estimate for cost of equity based on your answer to Question 3.

i. Buying out JV will cost $100,00 of capital investment in the year 2006. It will nearly double cash flow to deck.

Answer: Both Companies are acting on a high-tech market. The development and progress in this market is really fast.