Assignment for PRINCE S.A.

You have to assess the value and risk of entering the Tunisian market for Jersey. The

questions 1, 2, 3, 6 and 7 are qualitative, while questions 4 and 5 are quantitative.

Question 1:

a) What are major risks faced by Jersey entering the Tunisian market? Please use the

same approach we used in class for Petrozuata and identify what are the sources

of risk of the venture from the perspective of Jersey (recall, operating risk,

sovereign risk, institutional risk, force majeure risk, global risk).

b) What would you do to reduce them?

c) Does the link with Nakit help in any way on this front?

Question 2: If we focus on the currency risk (only) for Jersey. Can you describe the types

of exposures (translation, transaction, economic) that Jersey faces.

Question 3: How would you hedge these exposure?

Question 4: At which price is Nakit willing to sell? That is what is Nakit's valuation of

half of Prince?

Question 5: At which price is Jersey willing to buy? That is what is Jersey's valuation of

half of Prince?

Question 6: What makes the valuation of Prince's venture different from the valuation of

an identical project in a domestic setting?

Question 7: Nakit's historical cost of equity is 25% (you can assume it to be the

unlevered one). Would you use it to evaluate the deal? Is it too high/low?

You can assume that:

a) Jersey's shareholders' are already holding an internationally diversified

portfolio. Their diversified beta is 1.34.

b) British equity premium (i.e., Rm-Rf) is 7%.

c) The Debt-to-Equity ratio (D/E) for Jersey is 0.13.

d) The UK corporate tax rate is 0.35.

e) The Tunisian corporate tax rate is 0.44.

g) Some data may not not be reported in the case. If you do not find specific

numbers you think you need, just make an assumption (e.g, in the case of

government bonds spreads, or country risk ratings).

Answer rating: 100% (QA)

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