Question Details

Impact of Country Perspective on Target Valuation 



1. Are there any other factors Blades should consider in making its decision? In your answer, you
should consider the price Skates’n’Stuff is asking relative to your analysis in question 1, other
potential businesses for sale in Thailand, the source of the information your analysis is based on,
the production process that will be employed by the target in the future, and the future
management of Skates’n’Stuff.

2. Impact of Country Perspective on Target Valuation. Targ Co. of the U.S. has been targeted by
three firms that consider acquiring it: (1) Americo (from the U.S.), Japino (of Japan), and Canzo
(of Canada). These three firms do not have any other international business, have similar risk
levels, and have a similar capital structure. Each of the three potential acquirers has derived
similar expected dollar cash flow estimates for Targ Co. The long-term risk free interest rate is
6% in the U.S., 9% in Canada, and 3% in Japan. The stock market conditions are similar in each
of the countries. There are no potential country risk problems that would result from acquiring
Targ Co. All potential acquirers expect that the Canadian dollar will appreciate by 1 percent a
year against the U.S. dollar and will be stable against the Japanese yen. Which firm will likely
have the highest valuation of Targ Co.? Explain.



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