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

1657 WordsApr 30, 20157 Pages
Questions: 1. Are the financial statements in Exhibit 3.7 consistent with V. Dourtan assumptions in Exhibit 3.1? 2. What’s is the most relevant valuation model, APV or Present Value? 3. How are multi-currency cash flows, currency risk and political risk being taken into account in our valuation model? 4. What is the relevant cost of capital for Jersey? For R.T. Nakit? Can they be different? Why? 5. What is the Dinar (Pound) value of the joint venture R.T. Nakit (jersey)? What are the project’s value drivers? 1- The data presented on exhibit 3.7 is, indeed following some of the assumptions stated on exhibit 3.1: minimum cash level is 10% of total assets, which was proved by dividing cash by total assets,…show more content…
The spread thus reflects pretty well the difference perceived by the market between the two countries in terms of political risk. 4-The cost of capital obtained for Jersey is 20.17% and the cost of capital for Prince is 22.84%. All the computations elaborated in order to answer this question can be seen on Appendix 1 and 2. These two are different since both companies are facing different levels and types of risk. Although both companies are working together through a joint-venture, risks associated with this project differ for both. Jersey will be investing in a company amidst Mediterranean Rim countries, where it never invested before, and will be facing uncertainty and country-specific risk, such as political or currency risk. Prince will be entering in two new markets: not only the company will start producing garments, where before it only manufactured fabric, but also it will start exporting to Europe, facing an entirely new environment, with new competitors, new currency and new challenges. 5- The approach used to calculate the value of the Joint Venture was a DCF using the APV method. Since the two companies, Jersey and Prince, have distinct characteristics and costs of capital, they value the project differently. For Prince, the Joint Venture has a total

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