Assignment for PRINCE S.A. You have to assess the value and risk of entering the Tunisian market
Question:
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).
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill