Make recommendations to the board of directors

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Reference no: EM132770009

Four Seasons Sydney Company Ltd, a company engaged in leisure sector, is evaluating the acquisition of a company in the same industry as part of their business expansion strategy. The Company is in the process of evaluating the options of the acquiring any of the following two companies based on the details given below:

Shangi-La hotel Sydney

Fair value of net asset at to date AUD 170 Million
Earnings for the year ended 31st March 2019 AUD 20,000,000

Risk of the company compared with market risk is 25% more

Grand Hyatt Melbourne

Fair value of net asset at to date AUD 100 Million
Earnings for the year ended 31st March 2019 AUD 11,500,000

Risk of the company compared with market risk is 20% more
Earnings of Shanri-La and Grand Hyatt are expected to grow at 5% and 4% respectively. Price expected by shareholders of Shangri-La is AUD 200 million and shareholders of Grand Hyatt expect AUD 110 million as the minimum selling price. Government Treasury bill rate as at to date 10% and the market return is 15%.

Problem 1: You are required to evaluate the above two acquisition options and make recommendations to the board of Directors of Four Seasons Sydney Company Ltd

Reference no: EM132770009

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