**Finance**

**Finance problem**

Part A

Problem 1 (Answer all parts of this problem)

A U.S. based acquiring firm is considering making an offer for CPRI PLC, a Thailand-based company. Below you can find the up-to 5-years free cash flow (FCF) forecasts (which include epsilon) for CPRI PLC. Values are given in millions of Thai Bahts (THB). Some additional inputs/assumptions are provided below.

Five-Year Forecast:

FCFs (THB, in millions Yr1 Yr2 Yr3 Yr4 Yr5

456 568 678 890 765

Additional Inputs/Assumptions:

Inflation rate, 2.40%

US Exchange rate at time t = 0 (US$1:THB33.63) 33.63

Exchange rate depreciation -1.17%

Real discount rate 3.56%

a. Compute the Present Value of CPRI PLC in TBH.

b. Translate the cash flows into U.S. dollars. [10% of total mark]

c. Estimate the discounted cash flow value of the investment under the two forecasts . Did you come up with the same present value? What rate did you use to discount the U.S. dollar flows? What assumptions are necessary to obtain equivalency between approaches A (converting local flows into dollars and discounting at a dollar rate) and B (forecasting in local currency and discounting at a local rate)? [20% of total mark]

d. What is the maximum premium a U.S. acquirer would be expected to pay if the value of CPRI PLC (without epsilon) is $380 million? [10% of total mark]