1 / 16

Exacta, s.a . case study

MGMT 575 Group B Case Study 2 September 16, 2012 Samantha Allison Leah Bond Lisa Cochran Louis Latimer. Exacta, s.a . case study. Overview. Company Background Statement of Problem Courses of Action Financial Information Analysis Recommendations Conclusion References.

mavis
Download Presentation

Exacta, s.a . case study

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. MGMT 575 Group B Case Study 2 September 16, 2012 Samantha Allison Leah Bond Lisa Cochran Louis Latimer Exacta, s.a. case study

  2. Overview • Company Background • Statement of Problem • Courses of Action • Financial Information • Analysis • Recommendations • Conclusion • References

  3. Company Background • Exacta, s.a. is major French machine tool manufacturer. • Currently sells within Europe and the United States. • Only 1/6th of annual U.S. exports are subject to currency risk. • Interested in opening a new plant in N. Carolina, opening the door to potential new sales to Canada and Mexico. • N.C. plant will be a $380 million investment with expected annual revenues of $420 million and expected annual net profits of $52 million.

  4. Statement of Problem • CEO and Finance Director are concerned with currency risks between Euro and Dollar. • Considering offsetting $380 million U.S. plant investment by issuing dollar bonds. • What would Exacta’s exposure be from new U.S. plant? • How would it change from the current exposure? • What is the most effective and inexpensive approach to hedging for that exposure?

  5. Courses of Action • Option 1 – Finance the new plant by a $380 million bond issue in dollars. • Option 2 – Sell forward at the beginning of each year the expected revenues of the plant.

  6. Financial Information • Two thirds output exported, mostly within the European Union. • Net-60 invoice produces one sixth current exposure to U.S. currency risk. • New plant in US expected cost $380 million. • Projected revenues of $420 million and net profit of $52 million annually.

  7. Financial Information • What would Exacta’s exposure be from new U.S. plant? • How would it change from the current exposure? • What is the most effective and inexpensive approach to hedging for that exposure?

  8. Analysis • Current Exchange Rates • Forward Exchange Rates • Spot Rates

  9. Current Exchange Rates

  10. Current Spot Rate Exchange

  11. Currency Conversion

  12. Current Currency Table

  13. Recommendations • Exacta should choose Option 2: • Sell forward at the beginning of each year the expected revenues of the plant • Stability for Exacta and customer • Exacta should NOT choose Option 1: • Must comply with U.S. regsfor traded bonds • Must register with SEC • Very long process • U.S. debt-rating agencies would determine credit worthiness

  14. Conclusion • Exacta concerned with currency risks between Euro and Dollar. • Exacta should sell forward at beginning of each year expected revenues of the plant.

  15. References Brealey, R., Myer, S., & Allen, F. (2011). Principles of corporate finance. (10th ed.). New York, NY: McGraw- Hill Irwin Currency Center. (2012). Retrieved September 15, 2012 from http://finance.yahoo.com/currency-investing Currency hedging. (2011) Retrieved September 13, 2012 from http://www.theglobeandmail.com/partners/a dvedc1111/currency-hedging-essential-to- profiting-from-international- trade/article1355447/?page=all Derivatives to Hedge Risk. (2010). Retrieved September 13, 2012 from http://www.investopedia.com/articles/stocks/04/12220 4.asp#axzz26PIszfXh

  16. References Foreign currency hedging. (2010). Retrieved September 13, 2012 from http://www.buzzle.com/articles/foreign- currency-hedging.html Spot Exchange Rates. (2012). Retrieved September 15, 2012 from http://www.foreign-trade.com/currency- outlook.htm Yankee Bond. (2011). Retrieved September 13, 2012 from http://www.investopedia.com/terms/y/yankeebond.asp #axzz26PIszfXh

More Related