Arial Case

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Memorandum To: Prof. Bruce G. Resnick From: Thibault Usson, Peidan Wu, Jerry Zhang, and Li Zhang Date: April 27, 2015 Re: Group Ariel Parity Conditions and Cross-Border Valuation Group Ariel, a global manufacturer of printing and imaging equipment, has to evaluate a proposal from its Mexican subsidiary to purchase and install a new cost-saving machinery at a manufacturing facility in Monterrey. This new equipment will allow automating recycling and remanufacturing of toner and printer cartridges, and would have a useful life of 10 years. To analyze the investment proposal, Group Ariel needs to conduct a DCF analysis and run an estimate for the Net Present Value (NPV) for capital…show more content…
[5] * Let us assume that the MXN/EUR experience huge depreciation in 2009 at 18 in 2009, with a growth at 1% for the following years. The NPV would be €63,651. [6] * Let us assume that the MXN/EUR experience huge depreciation in 2009 at 18 in 2009, with a growth at 3% for the following years. The NPV would be €42,655. [7] [5] See Exhibit 5. [6] See Exhibit 6. [7] See Exhibit 7. * Let us assume that the MXN/EUR experience huge depreciation in 2009 at 18 in 2009, with a growth at 5% for the following years. The NPV would be €24,318. [8] The more Mexican Peso depreciates, the lower the NPV. · Conclusion and recommendations: When IRP & PPP do not hold, the NPV using different computation method will be different. However, even with a significant depreciation, the NPV for this investment is always positive, which means it is always positive. In case of depreciation, we could reduce the currency effect by hedging its position in the forward and future market, the money market or the options market. Therefore, we recommend to approve the equipment purchase. [8] See Exhibit 8. Exhibit 1. Exhibit 2. Exhibit 3. Exhibit 4. Exhibit 5 t 5. Exhibit 5 Exhibit 6 Exhibit 7 Exhibit
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