1. (2 points) Consider the data in Exhibit 1. What does it say about the competitive position of Nextel in the marketplace relative to its competitors? Explain.

2. (2 points) Nextel has no choice but to sell some of its South American subsidiaries. Agree or disagree. Why?

3. (2 points) Is Nextel Peru likely to be better off if it is acquired by Entel? Discuss.

4. (2 points) Assume that the yield on 1-month Treasury Bills is 3.08%. What is the cost of equity of Nextel (NII Holdings) assuming investors are (i) diversified in the US, (ii) globally diversified and (iii) diversified in Latin America? Use the methods covered in class to compute the cost of equity.

5 USD Equity Value USD Net Debt Enterprise Value 1,000 500 1,500 Debt D/ 33.3% Historic D/V (2) 17.73% 25.18% 13.74% 41.68% 32.48% -13.91% 3.28% 26.57% 6.78% 7 (Local Currency in Millions) 8 9 10 Equity Net Minority Enterprise Current 11 Companies: Value (1) Interest Value DAV 12 America Movil 963,882 363,978 8,990 1,336,850 27.23% 13 Embratel Participacoes S.A 13,173 2,238 4.842 20.252 11.05% 14 Empresa Nacional De Telecomunicaciones 2,356,959 385,754 0 2.742.713 14.06% 15 NII Holdings 943 3,774 0 4,716 80.01% 16 Oi SA 10,152 28,921 0 39,073 74.02% 17 Telecom Argentina 24,167 (3,969) 200 20,398 -19.46% 18 Telefonica Brasil 59,983 975 0 60,957 1.60% 19 Telefonica Del Peru 2,213 0 10,045 22.03% 20 TIM Participacoes S.A. 21.196 1,632 0 22,828 7.15% 21 22 Source: All information except equity betas S&P Capital Q accessed 3/14/14. 23 (1) Stock prices as of 4/1/13, except NII Holdings, which was 4/5/13. 24 (2) Quarterly average over the past three years. 25 (3) Source: Bloomberg accessed 3/14/14. Raw three year monthly betas. 26 (4) Source: Bloomberg accessed 3/14/14. Raw three year monthly betas based on US dollar denominated returns. 27 (5) Source: Bloomberg accessed 3/14/14. Raw three year monthly betas based on US dollar denominated returns. 28 O Source: Bloomberg accessed 3/14/14. Raw three year monthly betas based on local currencies. 29 (7) Case writer estimates 30 S&P Equity Beta (3) 1.12 0.53 0.83 0.65 1.08 1.31 0.73 0.38 0.82 MSCI World Equity Beta (4) 1.01 0.63 0.80 0.77 1.14 1.17 1.58 0.35 0.81 MSCI Latin Equity Beta (5) 0.75 0.64 0.81 0.67 1.08 0.89 0.63 0.24 0.74 Local Equity Beta (6) 0.91 0.56 0.77 0.65 0.86 1.05 0.47 0.49 0.58 Debt Beta (7) 0.12 0.05 0.07 0.18 0.15 0.00 0.00 0.17 0.07 Local Equity Value Local Net Debt Local Enterprise Value #REF! #REF! #REF! 7.833 DV REF! Local Risk-Free Rate US Cost of Capital 4.00% 8.25% 3 #REF! #REF! #REF! #REF! US EMRP 5.00% #REF! 31 8.6% 33 (Local Currency in Millions) 34 35 Revenue 36 Companies Growth 37 America Movil 13.0% 38 Embratel Participacoes S.A. 45.0% 39 Empresa Nacional De Telecomunicaciones 14.8% 40 NII Holdings -11.7% 41 Oi SA 165.1% 42 Telecom Argentina 18.3% 43 Telefonica Brasil 2.1% 44 Telefonica Del Peru 5.3% 45 TIM Participacoes S.A. 6.8% 46 47 48 Average 28.7% 49 Median 13.0% 50 51 (1) EBIAT = EBIT(1-t) using the effective tax rate. 52 (3) 5 year revenue growth is on a compund annual basis. 53 Source: Data from S&P CapitallQ accessed on 2/27/13. 54 Last 12 Months: EBIT EBITDA EBIAT Margin Margin Margin (1) 19.7% 33.0% 21.8% 11.5% 26.9% 5.9% 17.4% 38.4% 14.5% 0.9% 14.2% NM 18.6% 30.1% 12.3% 18.3% 26.3% 11.9% 20.2% 35.9% 12.8% 19.3% 34.7% 11.3% 13.8% 28.0% 9.5% FCF Revenue Margin Growth (2) 10.6% 19.1% -11.0% 17.2% 3.0% 8.1% -6.7% 10.4% 2.4% 20.5% 8.5% 19.4% 19.2% 18.1% 12.8% 6.3% 2.3% 8.6% 5 Year Average: EBIT EBITDA EBLAT Margin Margin Margin (1) 12.0% 14.4% 10.3% 12.1% 13.1% 21.6% 42.7% 18.2% 14.0% 24.2% 9.1% 22.2% 33.9% 15.9% 20.8% 13.5% 21.4% 36.9% 15.0% 19.2% 39.7% 10.9% 8.6% 26.6% 5.2% FCF Margin 11.1% 1.3% 5.6% 3.0% 16.0% 12.1% 16.9% 15.7% 4.2% 30.5% 15.5% 18.3% 29.7% 30.1% 12.5% 12.1% 4.6% 3.0% 14.2% 17.2% 16.9% 19.2% 29.1% 30.5% 11.9% 10.9% 9.5% 11.1% 5 USD Equity Value USD Net Debt Enterprise Value 1,000 500 1,500 Debt D/ 33.3% Historic D/V (2) 17.73% 25.18% 13.74% 41.68% 32.48% -13.91% 3.28% 26.57% 6.78% 7 (Local Currency in Millions) 8 9 10 Equity Net Minority Enterprise Current 11 Companies: Value (1) Interest Value DAV 12 America Movil 963,882 363,978 8,990 1,336,850 27.23% 13 Embratel Participacoes S.A 13,173 2,238 4.842 20.252 11.05% 14 Empresa Nacional De Telecomunicaciones 2,356,959 385,754 0 2.742.713 14.06% 15 NII Holdings 943 3,774 0 4,716 80.01% 16 Oi SA 10,152 28,921 0 39,073 74.02% 17 Telecom Argentina 24,167 (3,969) 200 20,398 -19.46% 18 Telefonica Brasil 59,983 975 0 60,957 1.60% 19 Telefonica Del Peru 2,213 0 10,045 22.03% 20 TIM Participacoes S.A. 21.196 1,632 0 22,828 7.15% 21 22 Source: All information except equity betas S&P Capital Q accessed 3/14/14. 23 (1) Stock prices as of 4/1/13, except NII Holdings, which was 4/5/13. 24 (2) Quarterly average over the past three years. 25 (3) Source: Bloomberg accessed 3/14/14. Raw three year monthly betas. 26 (4) Source: Bloomberg accessed 3/14/14. Raw three year monthly betas based on US dollar denominated returns. 27 (5) Source: Bloomberg accessed 3/14/14. Raw three year monthly betas based on US dollar denominated returns. 28 O Source: Bloomberg accessed 3/14/14. Raw three year monthly betas based on local currencies. 29 (7) Case writer estimates 30 S&P Equity Beta (3) 1.12 0.53 0.83 0.65 1.08 1.31 0.73 0.38 0.82 MSCI World Equity Beta (4) 1.01 0.63 0.80 0.77 1.14 1.17 1.58 0.35 0.81 MSCI Latin Equity Beta (5) 0.75 0.64 0.81 0.67 1.08 0.89 0.63 0.24 0.74 Local Equity Beta (6) 0.91 0.56 0.77 0.65 0.86 1.05 0.47 0.49 0.58 Debt Beta (7) 0.12 0.05 0.07 0.18 0.15 0.00 0.00 0.17 0.07 Local Equity Value Local Net Debt Local Enterprise Value #REF! #REF! #REF! 7.833 DV REF! Local Risk-Free Rate US Cost of Capital 4.00% 8.25% 3 #REF! #REF! #REF! #REF! US EMRP 5.00% #REF! 31 8.6% 33 (Local Currency in Millions) 34 35 Revenue 36 Companies Growth 37 America Movil 13.0% 38 Embratel Participacoes S.A. 45.0% 39 Empresa Nacional De Telecomunicaciones 14.8% 40 NII Holdings -11.7% 41 Oi SA 165.1% 42 Telecom Argentina 18.3% 43 Telefonica Brasil 2.1% 44 Telefonica Del Peru 5.3% 45 TIM Participacoes S.A. 6.8% 46 47 48 Average 28.7% 49 Median 13.0% 50 51 (1) EBIAT = EBIT(1-t) using the effective tax rate. 52 (3) 5 year revenue growth is on a compund annual basis. 53 Source: Data from S&P CapitallQ accessed on 2/27/13. 54 Last 12 Months: EBIT EBITDA EBIAT Margin Margin Margin (1) 19.7% 33.0% 21.8% 11.5% 26.9% 5.9% 17.4% 38.4% 14.5% 0.9% 14.2% NM 18.6% 30.1% 12.3% 18.3% 26.3% 11.9% 20.2% 35.9% 12.8% 19.3% 34.7% 11.3% 13.8% 28.0% 9.5% FCF Revenue Margin Growth (2) 10.6% 19.1% -11.0% 17.2% 3.0% 8.1% -6.7% 10.4% 2.4% 20.5% 8.5% 19.4% 19.2% 18.1% 12.8% 6.3% 2.3% 8.6% 5 Year Average: EBIT EBITDA EBLAT Margin Margin Margin (1) 12.0% 14.4% 10.3% 12.1% 13.1% 21.6% 42.7% 18.2% 14.0% 24.2% 9.1% 22.2% 33.9% 15.9% 20.8% 13.5% 21.4% 36.9% 15.0% 19.2% 39.7% 10.9% 8.6% 26.6% 5.2% FCF Margin 11.1% 1.3% 5.6% 3.0% 16.0% 12.1% 16.9% 15.7% 4.2% 30.5% 15.5% 18.3% 29.7% 30.1% 12.5% 12.1% 4.6% 3.0% 14.2% 17.2% 16.9% 19.2% 29.1% 30.5% 11.9% 10.9% 9.5% 11.1%