International Finance Homework

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HW6 Assignment
FIN465 – Chapters 15,16,17
Instructor: Dr. Blaise Roncagli

You may use your book and notes when working on these problems, and you may work in groups with others, but the final product that you submit for grading must be your own work. Follow the instructions provided in this handout very carefully. Failure to follow instructions may result in loss of points.

Chapter 15 Problems

15-1 Murphy Toys Inc., a U.S.-based MNC, has screened several targets. Based on economic and political considerations, only one eligible target remains in Malaysia. Murphy would like you to value this target and has provided you with the following information:

• Murphy expects to keep the target for three years, at which time it expects to sell the firm for 300 million Malaysian ringgit (MYR) after any taxes.

• Murphy expects a strong Malaysian economy. The estimates for revenue for the next year are MYR200 million. Revenues are expected to increase by 8% in each of the following two years.

• Cost of goods sold is expected to be 50% of revenue.

• Selling and administrative expenses are expected to be MYR30 million in each of the next three years.

• The Malaysian tax rate on the target's earnings is expected to be 35 percent.

• Depreciation expenses are expected to be MYR20 million per year for each of the next three years.

• The target will need to reinvest MYR7 million in cash each year to support existing operations.

• The target's stock price is currently MYR30 per share. The target has 9 million shares outstanding.

• Any remaining cash flows will be remitted by the target to Murphy Inc. Murphy uses the prevailing exchange rate of the Malaysian ringgit as the expected exchange rate for the next three years. This exchange rate is currently $.25.

• Murphy’s required rate of…...

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