FMIA ASSIGNMENT

FMIA Assignment

Table of Contents

Executive Summary2

Question 13

Valuation of a company3

Objectives of Company Valuation4

Valuation Methods for Mergers/Takeovers5

Discounted Cash Flow Method (Income Approach)5

Comparative Approach6

Question 27

Weak Exchange Rates8

Weaker Currency - Advantages and Disadvantages8

Question 310

Exchange Rate and Business Risks10

Hedging11

Hedging Instruments12

Applicable Instruments in the Case13

Forward Contracts13

References16

Executive Summary

Valuation is the process that allows the company to determine the market value of the company. The valuation represents a service and has to determine the value of all companies or individual shares in respect thereof. It is an essential part of corporate finance. The specificity of each business valuation arises regularly from the fact that companies often represent a complex entity. Valuation of the company is currently being implemented on the basis of three approaches to the evaluation, income method, expenditure and comparative approach. In this paper, we have discussed the most commonly used two methods; Discounted Cash Flow Method and Comparative Approach to valuation. The most commonly used method with respect to takeovers or acquisition is that of Discounted Cash Flow (DCF) methods, also known as the Income Approach. Comparative Approach refers to a group of valuation methods in identifying the company's value by comparing it with others. The approach is based on transaction prices obtained in the market conditions. The main issue is the selection of comparable companies as well as economic and financial indicators (comparative multiples). Weaker currency means that a currency has devalued in relation to another currency and vice versa. The advantage of the devaluation of currencies are tempting to reduce public debt, encouraged exports and brought the economy going while a strong currency really means that a situation whereby you can get a lot of foreign currency with little of their own. There are different risks involved in the financial market for which the investors need protection. The financial market is an important place for the investors where they buy and sell the market securities. Business risk is the uncertainty associated with the operation of a business. The term hedge, hedging or hedge transaction refers to a financial transaction to evade a transaction against risks, such as currency fluctuations or changes in commodity prices. Derivatives are hedging instruments whose value depends on the value of an underlying asset. The tool applicable in this case is Forward Contract.

Question 1

Valuation of a company

Valuation is the process that allows the company to determine the market value of the company. The valuation represents a service and has to determine the value of all companies or individual shares in respect thereof. It is an essential part of corporate finance. The specificity of each business valuation arises regularly from the fact that companies often represent a complex entity. There are numerous business disciplines that need to be in the frame of each company valuation properly recorded and mapped and eventually condensed into a single monetary value. In particular, there are different aspects of the investment, capital markets and decision theories to consider. In addition, company valuations through strategic business planning, accounting, and not least because of tax issues are ...