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Reference no. 201-003-1
Published by:
INSEAD (2000)
6 pages
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This is the third of a four-case series. A major concern of the family owners was whether to try to sell their company. The (C) case gives students the opportunity to consider many approaches to valuing a firm: comparative valuation (P/E ratios, price-to- book ratios, price to cash flow ratios, and price to sales ratios) or a DCF valuation. Both approaches present considerable analytical problems. A major weakness of the comparative approach is to find a similar company. Hong Kong, a relatively small stock market, has no firm in the toy business to use as a guide. Other publically traded firms of similar size, markets, and product-lines are found in the Japanese and the American stock markets. But given the differences among the companies and also the markets, how useful are these? There is enough data in the case to allow the student to make a DCF valuation, although projection of the cash flows is subject to a wide range of possibilities. An estimate of a reasonable discount rate also is required, raising questions (assuming use of the CAPM) such as what should be the firm's beta, the risk-free rate, and the equity market premium. Students will need at least two hours of preparation plus a full class session.


Financial analysis; Working capital management; Investment appraisal; Valuation of a company; Currency risk management
USD35 million
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