Question: Consider the Ideko intrinsic valuation example seen in class. Differently from what was done in class, assume that the Ideko's market share remains at 10%.

Consider the Ideko intrinsic valuation example seen in class. Differently from what was done in class, assume that the Ideko's market share remains at 10%. You can verify that, in that case, an expansion in 2008 and 2009 is far from being necessary, and therefore Ideko will not have abnormal capital expenditures in 2008 and 2009 (they will remain as 5 million per year), and also will not increase its borrowing in 2008 and 2009. To make its target leverage ratio consistent with this new scenario, it has to be 50% rather than 40%. Assume the cost of debt remains at 6.8% per year inspite of the leverage increase.

What is closest to the IRR from KKP's perspective?

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To calculate the Internal Rate of Return IRR from KKPs perspective we need to consider the cash flows associated with Idekos operations and the given changes in the scenario Lets assume the following information Market share remains at 10 Abnormal capital expenditures in 2008 and 2009 are not necessary 5 million per year Borrowing does not increase in 2008 and 2009 Target leverage ratio is 50 Cost of debt remains at 68 per year To calculate the IRR we need to determine the cash flows from Idekos operations taking into account the new scenario Year 2008 Operating cash flow ... View full answer

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