Surabaya Advisors, a private equity firm located in Indonesia, would like to purchase a noodles manufacturer in
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Question:
They plan to hold the company for four years and then sell. They have worked out that they would be able to sell at the end of this period for 8.5 times FCF based on market assumptions for the industry. The spot rate for Indonesian Rupiah/Ringgit is 0.00028 and Indonesian inflation is 15% whereas that for Malaysia is 11.5%. Surabaya requires a 25% return on investment:
a) What would be the value of Genting Mi if the Ringgit exchange rate remained unchanged over the four year period?
b) Advise how Surabaya Advisors could hedge the exchange rate risk for this investment. Discuss with reference to futures, forwards, swaps and options to illustrate your response?
Related Book For
Valuation The Art and Science of Corporate Investment Decisions
ISBN: 978-0133479522
3rd edition
Authors: Sheridan Titman, John D. Martin
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