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Prince S.A. Case

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Submitted By cobra44
Words 670
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Problem 1:
Question: What is the economic rationale of the venture? Prince Geographic location Located in Mediterranean region, attractive to Jersey because of manageable source of goods Preferential investment policies in Tunisia:  Unrestricted remittance of dividends  Capital repatriation in case of liquidation  Modified regulation to avoid double taxation of dividends Jersey Headquartered in UK, access to the European market for garments Jersey had multi-national manufacturing and sourcing experiences, great opportunity for Prince to lower its business risk through diversification Jersey can provide:  state-of-the art fabric technology  recognized design competence  well established brand

Investment opportunity

Competitive Lower labor costs advantages

Problem 2:
Question: What makes the valuation of Prince’s venture different from the valuation of an identical project in a domestic setting? The valuation results on the same project are different because the business risk levels, e.g. ß of two companies are different. Jersery’s business is well diversified through multi-international investments. Its cost of capital can be calculated using CAPM: ( )

Prince has only one owner, Mr. Nakit, making its business risk less diversified. In addition, Prince’s business is domestic market based; therefore it is highly sensitive to the Tunisian economic conditions. According to the case, Prince’s estimated cost of capital is about 25%, significantly higher than that of Jersey. If Prince co-operate with a domestic company, the business risk of the JV would remain highly related to the market risk of Tunisia. If Prince establishes a JV with Jersey, because the volatility of Jersey’s international business is not correlated with Tunisian market, the JV between would be reduced because of diversification.

Problem 3:
Question: At what price should the deal

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