To assess this issue, we have taken a look at the volatility of the peso against the euro in the following graph. The equipment will allow the company to automatically recycle and remanufacture cartridges of toner and printer.
This shows the value of the peso against the euro for the last 3 years. To calculate the answer, the new cash flows were calculated based on an exchange rate of MXN Using the spot exchange rate of MXN How and why do they differ?
We now have to decide whether to finance the project in pesos or euros. This difference depicts the fact that although there arise a positive net present value in both the scenarios but the higher value shows that the project has a much higher value for the investors in Mexico rather than in France.
With the help of these exchange rates, the Pesos values could be converted into Euros. Should Ariel approve the equipment purchase? However, if Groupe Ariel was expecting depreciation of the peso against the euro, the NPV turned negative.
Like the previous scenario, the NPV calculated in question 5 is higher as compared with this NPV which conveys the fact that the investment is worth undertaking for the investors of Mexico rather than the parent company in France.
All the calculations can be seen from the below given exhibits.
The currency we decided Groupe Ariel S. How should we incorporate such an expectation into his NPV analysis? Is it safe to pay? In almost every case the NPVs were positive, which means that Groupe Ariel should go ahead with the project.
Another method that can be used is to use the expected future spot exchange rates. Since the old equipment is being sold at instead of the book value ofwe are getting a loss of Suppose Groupe Ariel expects a significant real depreciation of the peso against the Euro.
A distinction was also made between the Euro and Mexican peso in order to determine which currency Groupe Ariele should choose to go with in order to maximize their return. The net present value calculated in the first scenario was relatively higher as compared with the second scenario and a positive change of In order to calculate the net present value, all the Euro-based future cash flows are discounted back to the present value and the initial investment of the cost of machinery is subtracted from that value.
They currently have issues with refugees, went through a lot of hardship with Greece and are still in doubt how to ensure economic prosperity. First of all, we calculated the difference in operating costs by subtracting the cost of the old equipment by the cost of the new equipment.
Luehrman; James Quinn Publisher: Write down these new cash flows. Case Study for Multinational Finance. For this method, a derivation of the PPP equation was used to compute the projected future exchange rates.Groupe Ariel S A Parity Conditions and Cross Border Valuation Brief Case Case Solution - When students hold the British-language PDF from the Brief Case in the course-pack, they'll may also buy a sound version.
Groupe Ariel examines a deal. International Finance Assignment #2 – Groupe Ariel S.A.: Parity Conditions and Cross-Border Valuation 1.
Compute the NPV of Ariel-Mexico's recycling equipment in pesos by discounting incremental peso cash flows at a peso discount rate. Groupe Ariel S. A. Parity Conditions and Cross Border Valuation Case Solution, Groupe Ariel S.
A. Parity Conditions and Cross Border Valuation Case Solution Now let’s calculate the Euro-based NPV of this project. First, convert the ca. Question 1: Compute the NPV of Ariel-Mexico's recycling equipment in pesos by discounting incremental peso cash flows at a peso discount rate and translate this into Euro.
Groupe Ariele is willing to invest in a new company process, going from a manual process to an automatic process. Abstract Groupe Ariel is a company that manufactures and sells printers, copiers and other document production equipment.
The case focuses on an investment project in published this. Groupe Ariel S. A. Parity Conditions and Cross Border Valuation Case Solution.
These cash flows should be denominated in Pesos. In order to determine the cash flows of Groupe Ariel’s Mexican recycling project, the difference of the manual process and the automatic process is taken which derives the cost saving for the company in the future in pesos.Download