James has undertaken some research over the Internet, and has concluded that he has identified a great investment opportunity - ABC Ltd. ("ABC") - for XYZ. James' Internet research has led him to conclude as follows relative to ABC: a) ABC is a privately held company incorporated in Panama in 2004; b) The sole shareholder and Director of ABC is an individual - Robyn Hoode - living in France; C) ABC operates a furniture manufacturing business located in Ukraine near the border with Russia; d) ABC has generated the following cash flows (all unaudited) over the years referenced below (all in Cdn $): 2015: $100,000.00 2016: $375,000.00 2017: $875.000.00 2018: $125,000.00 2019: $1,500,000.00 e) The future cash inflows of ABC are forecasted to be as follows (all Cdn $): 2022: $250,000.00 2023: $1,750,000.00 2024: $340,000.00 2025: $800.000.00 2026: $350,000.00 Total: $3.490.000.00 f) Through an exchange of emails, Robyn Hoode has advised James that the purchase price to acquire the sole share of ABC is $2.5million (Can), payable as follows: Jan 1, 2023: $1.700.000 Jan 1, 2024: $500.000 Jan 1, 2025: $300,000 g) James's research also reveals that ABC will need to replace manufacturing equipment in the year 2024. The anticipated replacement costs total $500,000.00 Cdn h) According to James, XYZ stands to generate a "guaranteed" profit of approximately $500.000.00 from the acquisition of ABC. calculated as follows: Future Cash Flows: $3,490,000.00 Less: Purchase Price: $2.500.000.00 Replacement Costs: $ 500.000.00 "Profit" $ 490,000.00 Your research has revealed the following: the risk-free rate in Canada is currently 2%; There are no preferred shares outstanding within XYZ: David is the step-father of James, ABC has never been subjected to an audit by an independent firm of external auditors: . the market risk premium for this potential investment is, at least, 18%, and. The historic and forecasted cash inflows of ABC have been provided to James by Robyn Hoode via Facebook. PLEASE ADVICE USING QUALITATIVE AND QUANTITATIVE ANALYSIS James has undertaken some research over the Internet, and has concluded that he has identified a great investment opportunity - ABC Ltd. ("ABC") - for XYZ. James' Internet research has led him to conclude as follows relative to ABC: a) ABC is a privately held company incorporated in Panama in 2004; b) The sole shareholder and Director of ABC is an individual - Robyn Hoode - living in France; C) ABC operates a furniture manufacturing business located in Ukraine near the border with Russia; d) ABC has generated the following cash flows (all unaudited) over the years referenced below (all in Cdn $): 2015: $100,000.00 2016: $375,000.00 2017: $875.000.00 2018: $125,000.00 2019: $1,500,000.00 e) The future cash inflows of ABC are forecasted to be as follows (all Cdn $): 2022: $250,000.00 2023: $1,750,000.00 2024: $340,000.00 2025: $800.000.00 2026: $350,000.00 Total: $3.490.000.00 f) Through an exchange of emails, Robyn Hoode has advised James that the purchase price to acquire the sole share of ABC is $2.5million (Can), payable as follows: Jan 1, 2023: $1.700.000 Jan 1, 2024: $500.000 Jan 1, 2025: $300,000 g) James's research also reveals that ABC will need to replace manufacturing equipment in the year 2024. The anticipated replacement costs total $500,000.00 Cdn h) According to James, XYZ stands to generate a "guaranteed" profit of approximately $500.000.00 from the acquisition of ABC. calculated as follows: Future Cash Flows: $3,490,000.00 Less: Purchase Price: $2.500.000.00 Replacement Costs: $ 500.000.00 "Profit" $ 490,000.00 Your research has revealed the following: the risk-free rate in Canada is currently 2%; There are no preferred shares outstanding within XYZ: David is the step-father of James, ABC has never been subjected to an audit by an independent firm of external auditors: . the market risk premium for this potential investment is, at least, 18%, and. The historic and forecasted cash inflows of ABC have been provided to James by Robyn Hoode via Facebook. PLEASE ADVICE USING QUALITATIVE AND QUANTITATIVE ANALYSIS
