1. You have been asked to review the valuation of Santiago Cement, a small Peruvian cement company, by an M&A analyst, for acquisition by a US cement company. The analyst has estimated a value of 1 billion Peruvian Sol for the equity, based upon the expectation that the firm will generate 50 million Peruvian sol in cash flows (to equity) next year, growing at 5% (in sol) a year forever; mistakenly, he used the US company's dollar cost of equity in the valuation. To correct the valuation, you have been provided with the following information: The US treasury bond rate is 3% and Peruvian dollar denominated bond rate is 5%; Peruvian equities are 1.5 times more volatile than the Peruvian dollar bond. The expected inflation rate in Peruvian sol is 6% and the expected inflation rate in US dollars is 2%. The typical Peruvian company generates 80% of its revenues in Peru, but Santiago Cement generates all of its revenues in Peru. Estimate the correct value of equity in Santiago Cement. (4 points) 1. You have been asked to review the valuation of Santiago Cement, a small Peruvian cement company, by an M&A analyst, for acquisition by a US cement company. The analyst has estimated a value of 1 billion Peruvian Sol for the equity, based upon the expectation that the firm will generate 50 million Peruvian sol in cash flows (to equity) next year, growing at 5% (in sol) a year forever; mistakenly, he used the US company's dollar cost of equity in the valuation. To correct the valuation, you have been provided with the following information: The US treasury bond rate is 3% and Peruvian dollar denominated bond rate is 5%; Peruvian equities are 1.5 times more volatile than the Peruvian dollar bond. The expected inflation rate in Peruvian sol is 6% and the expected inflation rate in US dollars is 2%. The typical Peruvian company generates 80% of its revenues in Peru, but Santiago Cement generates all of its revenues in Peru. Estimate the correct value of equity in Santiago Cement. (4 points)