Acme is also considering the acquisition of a firm in the Czech Republic and would like your opinion on this. It plans to operate the firm for 3 years and then reevaluate the holding.
Free Cash flows are estimated as follows:
- Year 1 – 38.63M Czech Koruna (CZK), Year 2 – 44.33 M CZK,
- Year 3 – 50.48M CZK
- The third year terminal value is estimated at 375M CZK.
The Czech Koruna’s exchange rate is assumed to be .038 USD/CZK for each year. Acme uses a WACC of 13 % for its domestic projects. So, the PV of the FCF’s for the firm is 363.78 M CZK or $13.82M. The Czech firm has 1,000,000 shares outstanding and a debt to equity ratio of 1:1. Current market price is 185 CZK per share.
All monetary information (except per share) should be presented in CZK millions (i.e., do not convert to USD).
- 1.Should Acme make a deal if its policy is to never exceed a 20% premium in any tender offer? To defend your position, you must prepare and present an Excel template that includes the calculated fair value premium over market.
- 2.What changes in the analysis or additional analysis do you suggest before a final decision should be made?
- 3.Using the DCF methodology required in question 1, please take one of your suggestions and reevaluate the buy-out. To complete this question, you will have to present a second Excel template that includes your new assumed values and supports your recommendations. Further, please comply with the following:
- Assumptions must be reasonable – i.e., don’t select arbitrary values. Some discussion should be provided that explains how you arrived at your new assumed values.
- Variable changes should be restricted to the discount rate, the FCFs, and/or the terminal value. Please present only one set of assumptions (e.g., do not submit a table that includes multiple values for the same variables.)
- To demonstrate that you have successfully prepared the Excel template, no two students may use the same values. To help ensure that your values are unique, please use a minimum of three significant (i.e., non-zero) digits to the right of the decimal point.