Nextel Peru: Emerging Market Cost of Capital Harvard Case Solution & Analysis


The case illustrates an importance of determining the enterprise value of the particular company under which various analytical tools have been applied to draw the final value matched with the expected bid by the investors and the analysts. Under the scenario, Nextel Peru was a targeted company for acquisition by Entel (A Chilean wireless company). It was determining various processes to manage the deal in a positive way.

There are also certain circumstances under which the company would not perform well shortly like the country in which it operated. Peru was a developing country around Latin America, whose inflation was alittle bit high as compared to the average state level. There were several other factors which would take an adverse impact on the future expected results of the acquired company and that could decrease the enterprise value based on the projections performed by the analysts and the acquirer.

Therefore, with all sudden conditions, it is identified that an analyst should take considerations over the country’s specific risks before determining the cost of capital of the acquired company. The same scenario should also execute by the Entel that would include the induction of default spread and the risk measurement of the index and other debt valuation. D’ Anconia (Associate of Andean Advisor) was focusing on the implementation to draw theconclusion that would match the company’s expected enterprise value in the next couple of years. He was still confused about whether a deal of $400 million would considered a fair price for Entel or not and if yes, then what factors would conclude towards the favorable deal. If no, then what are the negative outcomes associated with it.

Nextel Peru Emerging Market Cost of Capital Harvard Case Solution & Analysis

For further elaboration, if the price of Nextel Peru would be higher than the expected one or would be equal to the projected price or bid then it can be said that NII Holdings (Parent Company of Nextel Peru) should accept the deal. If the enterprise value would be less than the bid, then a parent company should wait until the price would match with the projected ones. The company could also perform several scenarios under which the cost of capital and the final value would adjustto draw outcome.

As, there were various risks involved to deal with the fair price like inflation rate, such ascountry’s risk premium or any other economic factor that would take a positive or negative impact towards the enterprise’s expected value. Thus, with all these considerations, it is said that Nextel Peru should follow the steps that would involve identifying the macroeconomic factors, currency devaluation and ability to perform proper rate of return to indicate that a process would include proper valuation techniques.

Moreover, D’ Anconia would also determine the use of spreads over the long-term debt ratings to maintain the risk under control for the future considerations.If the particular scenario would be implemented by the associate or the company itself then it shows that a final value would match with the expected enterprise value at the time the company is acquired by Entel.................

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