Paginas Amarelas Case Study Solution
-Calculate the WACC for international projects
-Find the value of the 3 units within Paginas Amarelas

Current Country Condition
-Major changes in political and economical environments in past 5 to  
 10 years
-Significant increase in international trade
-High inflation environments, especially in Argentina and Brazil
-Effect of Mexico Peso crisis on equity market and currencies in Latin  

-Use local parameters
--Too many valuation problems
-Use US proxy and adjust for country risk
--Preferred method
Valuation Problems
-No local "pure-play" competitor
--Beta cannot be easily calculated
---Mostly private companies; too small for comparison
---Cannot use Capital Structure comparisons
---Most companies owned other types of businesses
-Cost of equity
--Risk free rate for each country difficult to determine
--Market risk premium (return on market minus risk free rate) questionable because local equity markets not efficient
-Cost of debt
--Do not issue debt internationally; rely on local markets for borrowing

Formulas needed to solve case
-Cost of Equity
-Weighted Average Cost of Capital (WACC)
-Total Value

Key Assumptions
-All 3 units sold to one buyer
-No international debt taken on behalf of all 3 units
-Telephone - directory industry shares the quantities of the following industries equally:
--Direct marketing
--Information services
--Publishing / Paper
--Radio stations
-Cash flow estimates include
--Future impact of changes in demand due to privatization: lower margin
--Likelihood of government contract renewal
--Lower costs due to synergies
--Government's firm commitment to free markets, privatization, trade liberalization, and low inflation
---Prompted share increase in FDI and moderate economic growth

Cash Flows
-Use US$ for all 3 countries because highly inflationary currencies
--Cash flows are projected in nominal local currency
--Exchange rate based on interest rate parity
-Discount rate should be denominated in US$
--Match currency of cash flow

Beta Calculation
-Unlevered Beta of the industry
--Average of the 5 individual industries
--Generate US proxy for telephone - directory industry

Unlevered Beta vs S&P index
-Direct marketing = 0.86
-Information services = 0.79
-Newspapers = 0.74
-Publishing / Printing = 0.76
-Radio stations = 0.77
-Average = 0.78
The rest of this case study solution are in the financials.  
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