AmBev is a large Brazilian beverage company. You estimate the next year's FFCF at $10.5 billion. You also estimate the perpetual growth at 3.4%. It is a 100% equity funded company with a market capitalization of $98 billion. AmBev earns 73% of its revenues from developed markets and typical Brazilian company generates 63% of its revenues within Brazil. The standard deviation in ndice Bovespa (the Brazilian equity index) is 37% and the standard deviation in the Brazilian bond index is 19%. Brazil has a sovereign rating of Ba3 and the default spread on Brazilian dollar denominated bond is 2.15%. Your estimates of FCFF, perpetual growth rate and beta are consistent with market's estimate except that the market valued AmBev without incorporating lambda but accounting for country risk premium through a bludgeon approach. Beta for AmBev is 1.

Estimate the value of AmBev after adjusting for lambda.

Answer rating: 100% (QA)

To estimate the value of AmBev after adjusting for lambda we need to consider the country risk premi... View the full answer