Question Details

Blore would like you to value this target 


1. Valuing a Foreign Target. Blore Inc., a U.S.-based MNC, has screened several targets. Based on
economic and political considerations, only one eligible target remains in Malaysia. Blore would like you to value this target and has provided you with the following information:
• Blore expects to keep the target for three years, at which time it expects to sell the firm for
300 million Malaysian ringgit (MYR) after any taxes.
• Blore expects a strong Malaysian economy. The estimates for revenue for the next year are
MYR200 million. Revenues are expected to increase by 8% in each of the following two
years.
• Cost of goods sold are expected to be 50% of revenue.
• Selling and administrative expenses are expected to be MYR30 million in each of the next
three years.
• The Malaysian tax rate on the target- earnings is expected to be 35 percent.
• Depreciation expenses are expected to be MYR20 million per year for each of the next three
years.
• The target will need MYR7 million in cash each year to support existing operations.
• The target- stock price is currently MYR30 per share. The target has 9 million shares
outstanding.
• Any remaining cash flows will be remitted by the target to Blore Inc. Blore uses the
prevailing exchange rate of the Malaysian ringgit as the expected exchange rate for the next
three years. This exchange rate is currently $.25.
• Blore- required rate of return on similar projects is 20 percent.
a. Prepare a worksheet to estimate the value of the Malaysian target based on the information
provided.

2. Uncertainty Surrounding a Foreign Target. Refer to question 7. What are some of the key
sources of uncertainty in Blore- valuation of the target? Identify two reasons why the expected
cash flows from an Asian subsidiary of a U.S.-based MNC would have been lower as a result of
the Asian crisis.




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