Question
I need an answer quickly!!! You have been asked to review the valuation of Karaca Tiles, a small Turkish tile company, by an M&A analyst,
I need an answer quickly!!!
You have been asked to review the valuation of Karaca Tiles, a small Turkish tile company, by an M&A analyst, for acquisition by a US tile company. Theanalyst has estimated a value of 1 billion TL for the equity, based upon theexpectation that the firm will generate 50 million TL in cash flows (to equity) next year, growing at 5% (in TL) a year forever; mistakenly, he used the US companys dollar cost of equity in the valuation. To correct the valuation, you have been provided with the following information: The US treasury bond rate is 3% and Turkish dollar denominated bond rate is 6%; Turkish equities are 1.5 times more volatile than the Turkish dollar bond. The expected inflation rate in Turkish lira is 20% and the expected inflation rate in US dollars is 3%. The typical Turkish company generates 70% of its revenues in Turkey, but Karaca Tiles generates all of its revenues in Turkey. Estimate the correct value of equity in Karaca Tiles. Show your work.
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