Beruflich Dokumente
Kultur Dokumente
1 Trefica de Honduras
Texas Pacific, a U.S.-based private equity firm, is trying to determine what it should pay for a tool manufacturing firm in Honduras named
Trefica. Texas Pacific estimates that Trefica will generate a free cash flow of 13 million Honduran lempiras (Lp) next year (2003), and that this
free cash flow will continue to grow at a constant rate of 8.0% per annum indefinitely
A private equity firm like Texas Pacific, however, is not interested in owning a company for long, and plans to sell Trefica at the end of
three years for approximately 10 times Treficas free cash flow in that year. The current spot exchange rate is Lp14.80/$, but the Honduran
inflation rate is expected to remain at a relatively high rate of 16.0% per annum compared to the U.S. dollar inflation rate of only 2.0% per
annum. Texas Pacific expects to earn at least a 20% annual rate of return on international investments like Trefica.
a. What is Trefica worth if the Honduran lempira were to remain fixed over the three year investment period?
b. What is Trefica worth if the Honduran lempira were to change in value over time according to purchasing power parity?
Assumptions
Expected free cash flow in 2003
Expected growth rate in free cash flow
Assumed sale multiple of FCF in year 3
Spot exchange rate, Lempiras/$ (2002)
US dollar inflation rate
Honduran lempira inflation rate
Texas Pacific required return (annual rate)
Values
13,000,000
8.00%
10
14.80
2.0%
16.0%
20.0%
0
2002
14.8000
$
1.0000
$
$
14.8000
$
1.0000
$
$
2
2004
3
2005
13,000,000
14,040,000
13,000,000
14,040,000
15,163,200
151,632,000
166,795,200
14.8000
14.8000
14.8000
878,378 $
0.8333
731,982 $
948,649 $
0.6944
658,784 $
1
2003
2
2004
3
2005
13,000,000
14,040,000
13,000,000
14,040,000
15,163,200
151,632,000
166,795,200
16.8314
19.1416
21.7688
772,367 $
0.8333
643,639 $
733,483 $
0.6944
509,363 $
11,269,946
0.5787
6,521,959
7,912,725
0
2002
1
2003
5,587,094
7,662,110
0.5787
4,434,091
Variable manufacturing costs are expected to be 50% of sales. No additional funds need be invested in the U.S. subsidiary during the period
under consideration. The Czech Republic imposes no restrictions on repatriation of any funds of any sort. The Czech corporate tax rate is 25%
and the United States rate is 40%. Both countries allow a tax credit for taxes paid in other countries. Koch uses 18% as its weighted average cost
of capital, and its objective is to maximize present value. Is the investment attractive to Koch Refining?
Assumptions
Original investment (Czech korunas, K)
Spot exchange rate (K/$)
Unit demand
Unit sales price
Fixed cash operating expenses
Depreciation
Investment in working capital (K)
Project Viewpoint (in US$)
Initial investment
Revenues
Less costs of manufacturing
Gross profit
Less fixed cash operating expenses
Less depreciation
Earnings before taxes
Less Czech corporate income taxes
Net income
0
250,000,000
32.50
$
$
$
0
(7,692,308)
$
$
10.0
$
25%
27.50
900,000
10.30 $
1,030,000 $
500,000 $
7,000,000
(3,500,000)
3,500,000
(1,000,000)
(769,231)
1,730,769
(432,692)
1,298,077
2
$
$
$
$
769,231
$
25.00
1,000,000
10.60
1,060,000
500,000
$
$
$
$
769,231
10,600,000
(5,300,000)
5,300,000
(1,060,000)
(769,231)
3,470,769
(867,692)
2,603,077
769,231
(10,769,231) $
2,067,308 $
2,896,058 $
8,461,538
11,833,846
$
$
1.0000
(10,769,231) $
265,073
0.8475
1,751,956 $
0.7182
2,079,904 $
0.6086
7,202,444
18%
1
$
2,126,827 $
708,942
2,835,769 $
2,603,077
867,692
3,470,769
692,308 $
(432,692)
259,615 $
1,134,308 $
(708,942)
425,365 $
1,388,308
(867,692)
520,615
40%
1,298,077 $
432,692
1,730,769 $
9,270,000
(4,635,000)
4,635,000
(1,030,000)
(769,231)
2,835,769
(708,942)
2,126,827
(3,076,923)
30.00
700,000
10.00 $
1,000,000 $
500,000 $
50%
100,000,000
1,038,462 $
1,701,462 $
2,082,462
(10,769,231)
(10,769,231) $
1,038,462 $
1,701,462 $
8,461,538
10,544,000
$
$
1.0000
(10,769,231) $
(2,249,812)
0.8475
880,052 $
0.7182
1,221,963 $
0.6086
6,417,404
18%