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The Company Is Always

In: Business and Management

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Report of Brasil Investimentos’ telephone-directory business (Paginas Amarelas) valuation

In 1996, Brasil Investimentos retained JP Morgan & Company to evaluate its telephone-directory business, Pagina Amarelas, in order for a possible sale or restructuring of the subsidiary. This report mainly focuses on the analysis of the valuation process, strategies, problems and solutions.

Juan Lopez, who was given the task, put together a forecast of the future cash flows in US dollars for Pagina Amarelas . The data that used in valuation were all in US dollar as this is required by the client, Brasil Investimentos. This may mainly because of two reasons. First, Pagina Amarelas’s business was operating in three major countries within Latin America, which were Argentina, Brazil and Chile. These countries used different currencies and their exchange rates fluctuated seriously in the history. Using US dollar became an effective method to measure the quantity and value generated in different countries. On the other hand, using US dollar followed a more global standard and view that made foreign investors understand better. As Brasil Investimentos conducted this valuation for a sale or restructuring purpose, it is necessary to set a global scandalized valuation in a more international currency such as USD thus comparison and analysis in global market are easier to complete. In that case, funding, financing or transactions can be easily extended to a global base.

After anticipating the future cash flows, it is vital to estimate the weighted-average cost of capital(WACC) in order to calculate the present value of the cash flows. By definition, WACC is calculated based on cost of equity and cost of debt associated with their value weighted respectively. However, Lopez found it difficult and inappropriate to estimate a local discount rate due to the following reasons.…...

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