Financial Analysis Report: Nextel Peru and Country Risk

This financial analysis report delves into the valuation of Nextel Peru, examining its integration within global capital markets and the implications for country risk premiums. The report assesses the impact of Peru's operations in various countries on the organization's value, and analyzes the correlation between market factors and country risk premiums. It calculates Nextel Peru's asset beta, required return on assets, cost of capital, and long-range growth rate, using relevant financial data to determine the firm's value and whether it is undervalued or overvalued. The analysis incorporates key financial metrics like stock returns, bond yields, and growth rates to provide a comprehensive understanding of Nextel Peru's financial standing and market position. The report also references several academic sources to support its findings.

Running head: ACCOUNTING FINANCIAL ANALYSIS REPORT
Accounting Financial Analysis Report
Name of the Student:
Name of the University:
Authors Note:

ACCOUNTING FINANCIAL ANALYSIS REPORT
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Executive Summary:
From the relevant evaluation the actual firm value could be identified, with the help in
different types of calculations. In addition, the evaluation directly helps in detecting the
country risk premiums of Peru. Furthermore,, the calculation directly help in detecting firm
value of Nextel Peru, which could be used in determining whether the quote price is
undervalued or overvalued.

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Table of Contents
a) Depicting the overall extent whether Peru is integrated into or segmented from global
capital markets and identifying how Peru is to affect the estimation of country risk premiums:
....................................................................................................................................................4
b) Depicting Nextel Peru’s estimated asset beta and what is its estimated required return on
assets, while considering the estimates of cost of capital, long-range growth rate and free cash
flow:...........................................................................................................................................5
Reference and Bibliography:......................................................................................................8

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a) Depicting the overall extent whether Peru is integrated into or segmented from global
capital markets and identifying how Peru is to affect the estimation of country risk
premiums:
From the relevant evaluation it could be identified that Peru has operations in
Argentina, Brazil, Chilli, and Mexico, which allows the organisation to target high paying
clients. Operations of the organisation are adequately conducted in international borders,
which could help in increasing its value. The overall net income of the organisation mainly
went from $225 million to negative $765 million. However, relevant investments that was
conducted by the organisation on its operations which amounted to $1.5 billion. However, the
operations of the organisation were not providing adequate results which allowed Entel to
quote a price of $397 million and $415 million. After the valuation of the case study it could
be identified by Peru has been conducting operations in different countries which tends to
increase the risk involved in operations of the organisation.
The evaluation of the market directly indicated a correlation and Country risk
premium that needs to be addressed by the organisation. Furthermore due to globalisation has
relevantly market comprising in different countries has mainly become huge market.
Therefore, it could be understood that all the markets are interlinked as organisations listed it
one market also invests in different markets to generate higher return. Hence, D’Anconia
mainly needs to focus in Global market and understand the relevant risk that would affect
Peru stock market. Adequate standard deviation is mainly used to identify Peru’s stock
returns and bond yields. The relevant estimation of country risk premium could be affected
from the overall capital market, as any kind of negative impact food increase volatility and
raise risk from investment. Loughran and McDonald (2016) mentioned that use of adequate
valuation directly help in deriving the relevant risk involved in investments.

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Particulars Value
Stock returns relative σ Peru σ Peru / σ US
Stock returns relative σ Peru 0.09 / 0.047
Stock returns relative σ Peru 1.93
30 year bond yield relative σ Peru σ Peru bond / σ US bond
30 year bond yield relative σ Peru 0.009 / 0.007
30 year bond yield relative σ Peru 1.34
From the relevant evaluation of the above table stock returns of Peru can be
identified, 30 year bond yield Peru. Moreover, the stock returns are mainly calculated at 1.93,
while the 30 year bond yields are detected at 1.34. The overall values could mainly be used in
the calculation for deriving the overall country risk premium. Kothari, Mizik and
Roychowdhury (2015) argued that without adequate valuation of beta and other relevant
valuation actual country risk premium could not be detected.
b) Depicting Nextel Peru’s estimated asset beta and what is its estimated required
return on assets, while considering the estimates of cost of capital, long-range growth
rate and free cash flow:
Relevant calculation of the required return is also conducted, which comprises with
the country risk premium to detect the modified CAPM formula. The required rate of return
formula directly comprises from the valuation of country risk premium. Moreover, the
required rate of return also detects and uses risk free rate, and beta of the organisation. Hence,
the relevant risk factor in emerging markets is different, where adequate Lambda is used to
separately identify different types of risk.

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The Beta calculation may be calculated with the help relevant data, where beta of
Peru can be identified with adequate formula, which directly indicates that the beta of the
company is at 0.62. The overall results of Beta would be used in different formulas to detect
the relevant risk involved an investment. In this context, Hoskin, Fizzell and Cherry (2014)
stated that use of relevant investment option could eventually help in generating higher
revenue from investment and detection of Beta could allow investors you identify a risk
factors of the stock.
Particulars Value
US risk free rate 3.08%
Peru risk free rate 5.05%
US MRP 5%
US cost of capital 6.56%
Peru Cost of capital 8.60%
With the help of the above table adequate us cost of capital is mainly calculated,
where does period of US, beta, US MRP and country MRP is mainly used to detect overall
cost of capital of US. Furthermore, the relevant formula is also used arrived Peru cost of
capital, which is identified in the above team. Furthermore derivation of the cost of capital
would eventually help in identifying relevant actual value of the organisation. This detection
could also help in deriving required return that is needed by Peru. This derivation helps in
identifying the overall value of the firm in future. Warren, Reeve and Duchac (2013)
mentioned that detection of the required return mainly allows the investor to compare the
actual return provided by the company.
Particulars Value

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Growth US 3.00%
Growth Peru 5.90%
FCF0 11,731
FCF1 16,659
Unlevered Value 616,992
StDev Peru 9%
StDev US 4.66%
Rel StDev Peru 193.13%
StDev debt Peru 27.35%
Country MRP 0.65%
With the help of adequate growth rate and growth value the overall forms actual value
is being calculated. Show the map the calculation directly the text that the overall form values
at $616.992 million, which is relatively undervalued. Therefore, the current valuation the
organisation relatively undervalued, which might in turn help in detecting the overall growth
rate FCF value.

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Reference and Bibliography:
Amiraslani, H., Iatridis, G.E. and Pope, P.F., 2013. Accounting for Asset Impairment: A Test
for IFRS Compliance Across Europe: a Research Report by the Centre for Financial Analysis
and Reporting Research, Cass Business School. Cass Business School.
Gigler, F., Kanodia, C., Sapra, H. and Venugopalan, R., 2014. How Frequent Financial
Reporting Can Cause Managerial Short‐Termism: An Analysis of the Costs and Benefits of
Increasing Reporting Frequency. Journal of Accounting Research, 52(2), pp.357-387.
Hoskin, R.E., Fizzell, M.R. and Cherry, D.C., 2014. Financial Accounting: a user
perspective. Wiley Global Education.
Kothari, S.P., Mizik, N. and Roychowdhury, S., 2015. Managing for the moment: The role of
earnings management via real activities versus accruals in SEO valuation. The Accounting
Review, 91(2), pp.559-586.
Loughran, T. and McDonald, B., 2016. Textual analysis in accounting and finance: A
survey. Journal of Accounting Research, 54(4), pp.1187-1230.
Sullivan, S.D., Mauskopf, J.A., Augustovski, F., Caro, J.J., Lee, K.M., Minchin, M.,
Orlewska, E., Penna, P., Barrios, J.M.R. and Shau, W.Y., 2014. Budget impact analysis—
principles of good practice: report of the ISPOR 2012 Budget Impact Analysis Good Practice
II Task Force. Value in health, 17(1), pp.5-14.
Vogel, H.L., 2014. Entertainment industry economics: A guide for financial analysis.
Cambridge University Press.

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Wang, C., 2014. Accounting standards harmonization and financial statement comparability:
Evidence from transnational information transfer. Journal of Accounting Research, 52(4),
pp.955-992.
Warren, C.S., Reeve, J.M. and Duchac, J., 2013. Financial & managerial accounting.
Cengage Learning.
Zeff, S.A., 2016. Forging accounting principles in five countries: A history and an analysis
of trends. Routledge.