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1. Pricing a Foreign Target. Alaska Inc. would like to acquire Estoya Corp., which is located in Peru. In initial negotiations, Estoya has asked for a purchase price of 1 billion Peruvian new sol. If Alaska completes the purchase, it would keep Estoya’s operations for two years and then sell the company. In the recent past, Estoya has generated annual cash flows of 500 million new sol per year, but Alaska believes that it can increase these cash flows by 5 percent each year by improving the operations of the plant. Given these improvements, Alaska believes it will be able to resell Estoya in two years for 1.2 billion new sol. The current exchange rate of the new sol is $.29, and exchange rate forecasts for the next two years indicate values of $.29 and $.27, respectively. Given these facts, should Alaska Inc. pay 1 billion new sol for Estoya Corp. if the required rate of return is 18 percent? What is the maximum price Alaska should be willing to pay?
2. How Country Risk Affects NPV. In the previous question, assume that instead of adjusting the estimated cash flows of the project, Monk had decided to adjust the discount rate from 12 percent to 17 percent. Revaluate the NPV of the project’s expected scenario using this adjusted discount rate.
A firm is expected to pay $2 dividend per share in year 1 (D1=$2) and the dividend is expected to grow at a constant rate of 5%. If the firm's stock price is $28.64 based on the constant growth model, what is the required rate of return on the stock?
What are the attributes, advantages and disadvantages of both public and private debt - When a firm finds projects that are expected to build stockholder wealth
Determine the annual repayment schedule for the first two years (ie, interest, principal repayment, and balance owed) for each of the following: (Assume one payment annually) Compare the payments required by each mortgage.
What is the accumulated sum of each of the following streams of payments?
Compare the tools as to how they would apply for a couple in their mid-50s who are classified as middle-income earners, with no dependents (two adult children), who will have Social Security benefits, and who will have retirement plan income from ..
A company has $15 million in cash, $85 million in accounts receivables, and $200 million in inventory. If the current liabilities are $120 million, what is the current ratio?
Times of changing inventory prices (both inflation and deflation) how can the choice of the inventory costing method impact reported profits?
Holyrood Co. just paid a dividend of $2.10 per share. The company will increase its dividend by 20 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent divi..
How you estimated the percentage of capital that comes from debt, and common equity - find cost of debt
A company's 8% coupon rate, semi-annual payment, $1,000 par value bond that matures in 20 years sells at a price of $593.17. The company's federal-plus-state tax rate is 30%. What is the firm's after-tax component cost of debt for purposes of calcula..
What type of risk was measured and accounted for in Parts b and and should this be of concern to the hospital's managers?
Mary works as a full-service broker at a firm that charges $75 a trade plus 10 cents per share for the broker's services. Calculate her commission on the sale of 700 shares of stock at $26 per share.
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