Question 1 : There are several reasons why the valuation of a privatized business may be more difficult than the

valuation of a existing firm in a developed country. First, Future cash flows associated with a privatized business are very uncertain because the businesses previously have been operating in environment of little or no competition. Second, there are very limited data in some of these countries. Third, economic conditions in these countries are very uncertain. Fourth, exchange rate estimates are very uncertain. Fifth, the cost of local financing for projects in developing countries is very uncertain . Sixth, the lack of established stock markets in developing countries prevents an MNC from deriving a value for a business based on comparable publicly held firms. Seventh, the government may retain part of the firm , which could lead to control conflicts in the future. Question 2: When quantifying country risk: a. weights should be equally allocated among factors.
b. weights

should be assigned to the political and financial factors according to their perceived importance. c. it is not generally necessary to construct separate ratings for political and financial risk since these will be equally weighed in the final analysis. d. the derived factors will be identical for all MNCs conducting business in that country. Question 3 :
Years Operating CF Sale of estoya Cash flows in new sol Exchange rate Cash flows in $ 525.00 $ 0.29 $ 152.25 0 1 525.00 2 551.25 1,200.00 1,751.25 $ 0.27 $ 472.84

Pv ( 18% discount rate ) Cumulative Pv

$ 129.03 $ 129.03

$ 339.59 $ 468.62

Alaska, Inc. should not pay more than $ 468.2 million for Estoya Corp. Estoya is asking for 1.2 billion new sol, which translates to $ 348 million at the current exchange rate of $ 0.29. Therefore, Alaska , Inc. should purchase Estoya Corp

Question 4:
Country risk analysis is important because it:
a. focuses b. focuses c. can d. all

on whether to hedge contractual transactions. on the competitor firms in its industry.

be used to improve the analysis used to make long-term investing decisions.

of the above

Question 5 :

Years Dinar remitted by subsidiary Withholding tax Dinar remitted after withholding tax Salvage value Exchange rate Cash flows to parent PV of parent cash flow Initial investment by parent cumulative NPV

2 700,000

700,000 0 0 700,000

700,000 300,000

$ 0.70 $ 490,000 $ 418,803 $ 700,000 -$ 281,197

$ 0.70 $ 700,000 $ 511,359

$ 230,342

The project still have positive NPV of $ 230,342 and should be accepted. Notice that the NPV obtained using t adjusted discount rate is very close to expeceted NPv when the cash flows are adjusted