Valuing a Foreign Target. Blore Inc., a U.S.-based MNC, has screened several targets. Based on economic and political considerations, only one eligible target remains in Malaysia. Blore would like you to value this target and has provided you with the following information:
· Blore 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.
Blore 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 MYR7 million in cash each year to support existing operations. This expenditure reduces cash available for remission to US.
Any remaining cash flows will be remitted by the target to Blore Inc. Blore 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.
Blore's required rate of return on similar projects is 20 percent.
No further taxes are due in the US.
Assignment-Prepare a worksheet to estimate the value of the Malaysian target based on the information provided