Alptrivest Partners B.V. an Amsterdam-based private equity firm, has asked you to determine what it should pay for a tool manufacturing firm in Honduras tumed Tecfica The deal is expected to close at the end of 2020. Alplevest Partners estimates that Trefica will generate free cash flow of 10 million Honduran Lempiras ipl for 2021, and that this FCF will grow at a constant rate of 80% per annum indefinitely. These facts yield the following FCF forecasts Year: 2021 2022 2023 PCs (thousands of the 10,000 10,800 11,664 Alptrivest Partners planes to sell Tetica at the end of three years, for approximately 10 times Trefica's free cash flow for 2023. The current spot exchange rate is 14.30/s, but the Honduran inflation rate is expected to remain at a relatively high rate of 16,0% per annun. compared to the US dollar inflation of only 20% per annum, Alplest Partners requires at least a 20% annual rate of return on international investments like Trefica 4. Suppose Alpinest Partners is able to hedge future cash flows, such that is it able to lock in afwed 14,80 exchange rate over the three year investment. What is the value of Trefica in this case? b. What is Trefica's value if the lempira were to change in value over time according to purchasing power party? c. Suppose that Allavest Partners is concerned that the new Honduran president, who believes that the firm's products are essential to manufacturing certain national defense weapons might rationalize the firm in 2022. How should Alplmwest Partners account for this possibility in its valuation (capital budgeting analysis? Alptrivest Partners B.V. an Amsterdam-based private equity firm, has asked you to determine what it should pay for a tool manufacturing firm in Honduras tumed Tecfica The deal is expected to close at the end of 2020. Alplevest Partners estimates that Trefica will generate free cash flow of 10 million Honduran Lempiras ipl for 2021, and that this FCF will grow at a constant rate of 80% per annum indefinitely. These facts yield the following FCF forecasts Year: 2021 2022 2023 PCs (thousands of the 10,000 10,800 11,664 Alptrivest Partners planes to sell Tetica at the end of three years, for approximately 10 times Trefica's free cash flow for 2023. The current spot exchange rate is 14.30/s, but the Honduran inflation rate is expected to remain at a relatively high rate of 16,0% per annun. compared to the US dollar inflation of only 20% per annum, Alplest Partners requires at least a 20% annual rate of return on international investments like Trefica 4. Suppose Alpinest Partners is able to hedge future cash flows, such that is it able to lock in afwed 14,80 exchange rate over the three year investment. What is the value of Trefica in this case? b. What is Trefica's value if the lempira were to change in value over time according to purchasing power party? c. Suppose that Allavest Partners is concerned that the new Honduran president, who believes that the firm's products are essential to manufacturing certain national defense weapons might rationalize the firm in 2022. How should Alplmwest Partners account for this possibility in its valuation (capital budgeting analysis
