Reading 40: Valuation in Emerging Markets- LOS b～ Q6-7

border, provided, emerging, presented

Q6. Reynolds has been provided with the information contained in Tables 1 and 2 below, where the estimated value of the emerging market firm is presented based on a five-year cash flow forecast.

Table 1: Real Valuation of Emerging Market Firm

	Today	Year 1	Year 2	Year 3	Year 4	Year 5
Real FCF		117	152	155	158	162
Real continuing value						2,550
Total annual real cash flow		117	152	155	158	2,712
PV value factor (8%)		0.925926	0.857339	0.793832	0.73503	0.680583
PV of annual real cash flow		108	130	123	116	1846
Real firm value	2,323

Table 2: Nominal Valuation of Emerging Market Firm

	Today	Year 1	Year 2	Year 3	Year 4	Year 5
Nominal FCF		133	211	258	317	387
Nominal continuing value						6,155
Total annual nominal CF		134	211	259	318	6,542
Real WACC		0.08	0.08	0.08	0.08	0.08
E(Inflation)		0.35	0.15	0.15	0.15	0.15
Nominal WACC		0.458	0.242	0.242	0.242	0.242
PV factor		0.685871	0.552231	0.444631	0.357996	0.288241
PV of annual nominal CF		92	117	115	114	1,885
Nominal firm value	2,323

Note in Table 2 that the expected inflation rate is 35% in year 1 and 15% in years 2 through 5. Which of the following most accurately reflects the effect of an increase in inflation to 35% over years 2 through 5 on firm value in both real and nominal term?

Real Value Nominal Value

A) Decreases by at least 323 Decreases by at least 323

B) No change Decreases by at least 323

C) No change No change

Q7. Wavington Enterprises is headquartered in an emerging market nation that is expected to have 27% inflation over the next year. Charleston Johnson expects the local government to be successful in bringing inflation under control, and anticipates that it will fall to 20% in the second year and 10% in the third year, where he expects inflation to stabilize. Johnson predicts that by year 3, Wavington will have nominal free cash flow of $187 million growing at 4% annually in real terms. In view of his optimistic outlook, he is considering an investment in Wavington, and has calculated the real WACC for Wavington at 8%. The nominal continuing value of Wavington in year 3 is closest to:

A) $4,675.

B) $4,250.

C) $4,862.

[此贴子已经被作者于2009-3-6 14:54:31编辑过]