Solution of the Menko case (finance)

Overview: The Zambian proposal is prima facie tempting. But in order to accurately evaluate its contribution to the wealth of Menko's shareholders, it should be analyzed more in-depth. We will do this using the Adjusted Present Value approach. The Adjusted Present Value (APV), as developed by Myers , defines the value of a levered firm as the value of an otherwise identical but unlevered firm plus the value of any "side effects" due to leverage. These …

…The correct value of the cheap financing was incorporated within the AVP calculations when we added the NPV of the Japanese debt to the base-case NPV. Therefore, the best approach would be to observe the whole proposal from the parent company's view, after translating all figures into dollar amounts, based on a reasonable exchange rate forecast, just as we have done here. As discussed above, this approach reveals the "true face" of the Zambian proposal.