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The presence of these risks could create damaging effects for the viability of the project. However, it can be analyze from the case that with the convertibility law imposed by the Argentinean government, the risk relating to the currency has been substantially subsided.
In the case when this exchange rate risk rises significantly, the company can make use of certain hedging alternatives in order to minimize that risk, which includes the entrance in forward market as well as certain other swap options.
Thus, it can be seen that the risk associated with the exchange rate risk is substantially low because it could be minimized using various hedging tools further and should not be given a detailed consideration in order to compute the valuation of PBB.
Country Risk its Impact and its adjustment As far as the other risk is concerned, it can be seen from the Exhibit 12 of the case that the country risk is relatively very high, which strongly suggests that the company must account for this risk before computing the real worth of PBB.
This can be done by using the CAPM approach. The risk premium should comprise of both the market risk premium as well as the country risk premium. Thus, by using all the given information, the beta is computed to about 0. Other computation is related to the country risk premium, which could be computed using the value of Bond Yield provided in the case and the equity market volatility.
Meanwhile for the volatility factor, it can be seen that the equity markets are significantly more volatile than the bond market, which has been found to be around 1.
Now, with the help of the above elements, the discount rate for the given case is computed with the help of following CAPM formula: What would you bid for this project?
This is just a sample partial work. Please place the order on the website to get your own originally done case solution Related Case Solutions:May 29, · DOW CHEMICAL’S BID FOR THE PRIVATIZATION OF PBB IN ARGENTINA, SPANISH VERSION Case Solution & Analysis- rutadeltambor.com Dow Chemical Case Question 1 Polyethylene is the world’s most widely used plastic.
Polyethylene plastic’s principal application was in packaging, from trash bags to milk jugs. It was widely used in the manufacture of everything from trash bags, picnic cutlery and garbage pails, to plastic toys.
AS0 -Reserved AS-AS1 LVLT-1 - Level 3 Communications, Inc. AS2 UDEL-DCN - University of Delaware AS3 MIT-GATEWAYS - Massachusetts Institute of Technology. Methylene chloride is a chlorinated hydrocarbon that has been used as an inhalation anesthetic and acts as a narcotic in high concentrations.
Its primary use is as a . By using the rate of growth proposed in the case of % per annum and a discount rate of 16%, the NPV of 51% of PBB is of U.S. $ , million. This amount is not however the correct the price of the bid.
What price Dow Chemical bid for PBB, a petrochemical complex, which is being privatized by the Argentine government? To answer this question, students are forced to the role of country risk, currency risk of the underlying company, and how.