|Case Title||Groupe Ariel S.A.: Parity Conditions and Cross Border Valuation||Price||$75|
NPV Analysis (Peso)
Hurdle rate for Peso
Tax rateTimeCost of purchasing the equipment
After tax Cash inflow from the sale of Manual equipmentAfter tax depreciation DepreciationCost savings from New equipmentTotal Cash flows
PV of cash flows
NPV Analysis (Euros)
Discount rate in France
Expected Inflation in France
Expected Inflation in Mexico
Total Cash flows in Euros
PV OF CASH FLOWSNPV IN EUROSTotal cash flows
PV OF CASH FLOWS
NPV IN EUROS
This case discusses Cross-Border valuation of projects. This kind of analysis is common for companies that are operating in many countries. Groupe Ariel is one such company that is considering investing in a project in its own subsidiary in Mexico. The company manufactures and sells printers, copiers and other document production equipment in many countries. As far as, expansion into new markets is concerned, company is very slow in taking initiatives as compared to its competitors owing to the recent recession. But the management of the company believes that better durability and lower after-sales service costs of their products enable the company to build customer loyalty. The company is now considering replacing the manual equipment used for recycling in Mexico by new equipment that requires less material and labour costs. But, the uncertainty linked with certain macroeconomic factors like exchange rate, inflation and interest rate has made the valuation of the project very complex.
|No of Words||1596|
|Keywords||Capital budgeting, Exchange rates, Project evaluation, Securities analysis|
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