The assignment covers some of the issues faced (and decisions to be made) by (financial) managers in an international context for their companies. Based on the course topics you should be able – as (financial) manager – to answer the questions in order to cover the problems, calculate the relevant figures, and come up with alternative solutions. Please answer each question by calculating your answers in an excel sheet and showing them in the report together with the required comments, in a short paragraph for each
question.
Part 1: Amsterdam Sports Company (ASC), a Dutch company, considers to invest in a Mexican sports company to have its supply under control. It can do so by a so-called greenfield investment in Mexico or by an international acquisition.
a) What is the difference between the two? For both give two advantages and two
disadvantages.
ASC decides to investigate a take-over of the local club Mexico Sports (MS), let a Dutch staff member join the board of MS, improve its performance, and sell the company after 3 years.
• The expected free cash flow for next year is 10.000.000 MPS (Mexican Pesos), 11.000.000 MPS in the
second year and 12.000.000 in the third year.
• The expected value of MS at the end of the third year (on top of that year’s free cash flow) at which MS
is expected to be sold will be 6 times MS’s free cash flow.
• All free cash flows are after tax (so disregard Mexican and Dutch taxes).
• The current exchange rate is MPS 10,00 per EUR. The rate is expected to change according to its PPP.
The annual inflation rate for the coming three years in the Eurozone is expected to remain low. In
South America however the inflation for the next years depends on the government’s planned fiscal
and monetary policy and that is not clear yet. Estimated is
o 60% probability that inflation will be suppressed and the exchange rate will remain 10,00
MPS/EUR (scenario I)
o 40% probability that the policy will fail, inflation will increase and the the euro will rise to MPS
12,00 next year, 14,00 the 2nd year and 16,00 the 3rd year (scenario II).
• At the end of the first investment year it will be clear what the policy and so the inflation rate will be for
that year and the years to follow – and consequently the development of the MPS/EUR-rate.
• ASC’s minimum required rate of return on investments is 20%, not a basispoint less.
• The current owners want not a peso less than MPS 60.000.000 for their company.
As financial expert you start doing the necessary calculations for ASC:
b) Make an overview of the pros and cons of the take-over bid not only based on the provided data above
but also take into account the issues with regard to an M&A transaction in class.
c) Mention the impact the two scenarios will have on the outcome of the take-over transaction. Explain
the difference between a scenario analysis like this and a sensitivity analysis.
d) Show how the calculation of the expected value of MS for ASC from the expected cash flows and
required rate of return on investment will look like based on NPV and payback method. So will ASC buy
MS?
e) Describe the multiples method for valuating this acquisition.
f) In case the NPV is positive indicate what the IRR of this same project would be? Also explain why.
g) Describe the risks of the implementation of an acquisition like this. Include the risks of an investment
decision in an international context.
Part 2:
Because of the Corona crisis a company needs to raise additional funding for its operations. The
management decides to enter international capital markets (equity and debt) to find investors and asks an
investment bank to manage the whole process. The company has a good rating (A), so the issue(s) are
expected to be a success.
The questions are: how will the process of issuing in international capital markerts be organized by the
investment bank? Describe the different elements of the issuing process. And which factors determine
whether the issue will be a success? Elaborate on the international dimensions as well as on the impact of
the crisis.
Part 3:
Select a listed (public) international company of your choice. Describe the investment worthiness of
the company using as much relevant data like ratios and the valuation (eg DCF and multiples method) as
needed. In order to get the full picture whether this is a company to invest in, go online again and search
for the industry numbers or a peer company, to compare with the company and comment these in this
paragraph. Be critical in your analysis (so marketing language of the company is not so relevant, find
outside sources).
Part 4:
Look now at the same company data and take for your judgement of the investment worthiness of
the company also into account the (financial) risks, the riskmanagement and how these risks are or can be
mitigated (in which way? Do use scenario and/or sensitivity analysis). Elaborate on the trade off between
risk and (potential) return (is this a value investment or a growth stock? Might this company a potentail
take over candidate or will the company grow by taking over other companies? Judge how the dividend
policy is and the potential to buy back stocks).
Part 5:
Please write a brief APA-compliant report putting together the results of all previous parts. Make
sure the text flows clearly and be straight to the point, by highlighting the results that you think are most
interesting for a finance reader, assuming financial terminology is known, focusing on applying theory,
critical comments, interpretation of results, relevant Excel screenshots. The report should not be too long
but should contain all the answers and the information required. Overall a good report should not exceed 5
pages. Please remember that the points for this part are assigned to the structure, layout, grammar, and
APA compliance of the report, as well as to the complete referencing of all values, rates, decision making
criteria (and other information sourced from anywhere) to the source. Referencing is to be included in both
the body text and the final bibliography (list of references). The content is supposed to include the answers
to all parts, including the calculations made (formulas used), the variables included in the calculations (the
name and value of each variable has to be clearly stated), brief but complete paragraphs for all the theory
parts (including comments, comparisons, and all you are asked for in each part). Please do not copy paste in
the report the parts as they are presented in the assignment, as this may generate a high percent of
plagiarism report in Turnitin. Just give the report a structure based on short titles for the assignment parts,
without pasting the text of these parts.
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