3. Copper Mountain Group is a private equity firm headquartered in Wellington, New Zealand. It is...
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3. Copper Mountain Group is a private equity firm headquartered in Wellington, New Zealand. It is considering the purchase of a 100% stake in Zimma Gauda Ltd., a China- based pharmaceutical company. Zimma Gauda Ltd. is expected to pay a dividend of CNY 10m each year. The spot rate on the Chinese yuan is $0.1608/CNY, the spot rate on the New Zealand dollar is $0.8430/NZ$, and the cross rate between the Chinese yuan and the New Zealand dollar is CNY5.2436/NZ$. The yield to maturity on risk-free government bonds (denominated in local currency) is 3.59% in China, 1.88% in New Zealand and 1.84% in the U.S. Ignoring country risk, what is the maximum price you would recommend the Copper Mountain Group to bid? Market portfolio Chinese market New Zealand market Table I: Estimated "B" S&P500 Market portfolio Chinese market Proxy industry index Chinese Pharmaceutical Industry New Zealand Pharmaceutical Industry U.S. Pharmaceutical Industry * 0.80 is the beta of the Chinese Pharmaceutical Index relative to the Chinese market, ** 0.85 is the ß of the New Zealand Pharmaceutical Index relative to the Chinese market, etc. 0.80* 0.85** New Zealand market 0.89 0.50 0.36 0.87 Table II: Expected market risk premiums (in local currency) 5.0% S&P500 5.9% 5.5% 0.45 Expected market risk premium (E(Rm)-Rf) 0.75 0.94 3. Copper Mountain Group is a private equity firm headquartered in Wellington, New Zealand. It is considering the purchase of a 100% stake in Zimma Gauda Ltd., a China- based pharmaceutical company. Zimma Gauda Ltd. is expected to pay a dividend of CNY 10m each year. The spot rate on the Chinese yuan is $0.1608/CNY, the spot rate on the New Zealand dollar is $0.8430/NZ$, and the cross rate between the Chinese yuan and the New Zealand dollar is CNY5.2436/NZ$. The yield to maturity on risk-free government bonds (denominated in local currency) is 3.59% in China, 1.88% in New Zealand and 1.84% in the U.S. Ignoring country risk, what is the maximum price you would recommend the Copper Mountain Group to bid? Market portfolio Chinese market New Zealand market Table I: Estimated "B" S&P500 Market portfolio Chinese market Proxy industry index Chinese Pharmaceutical Industry New Zealand Pharmaceutical Industry U.S. Pharmaceutical Industry * 0.80 is the beta of the Chinese Pharmaceutical Index relative to the Chinese market, ** 0.85 is the ß of the New Zealand Pharmaceutical Index relative to the Chinese market, etc. 0.80* 0.85** New Zealand market 0.89 0.50 0.36 0.87 Table II: Expected market risk premiums (in local currency) 5.0% S&P500 5.9% 5.5% 0.45 Expected market risk premium (E(Rm)-Rf) 0.75 0.94
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Related Book For
Multinational Business Finance
ISBN: 978-0133879872
14th edition
Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett
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