Essay on Finance Midterm

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Midterm – John Doe
Executive summary
Diva shoes is an international shoes company that is experiencing rapid growth. Due to this rapid growth, the company never established a robust hedging strategy to protect itself against fluctuations of the multiple currencies it engages with.
This situation became more severe in Japan. The company’s growth in Japan exceeded all expectations, and unlike other countries in which the company conducted business (Italy for example) the company had almost no expenses there, and had to convert all the Yens it generated from selling its merchandise to dollars.
In the last few years, the Yen appreciated against the dollars, making the company’s lack of hedging strategy have little to no impact on the
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Again, I used the SG&A expenses as a percent of the revenue for 1994, then used the same ratio for 1995. I’m aware that this is not a great projection, as it ignores economies of scale and efficiency improvements as the company grows, but for the purposes of this projection, it’s the best I can do. The calculation is shown in the excel spreadsheet. e. I estimated the Yen/Dollar exchange rate to be 90. It is a bit higher than the current spot rate, but follows the trend according to exhibit 1. Exhibit 1 shows an appreciation to the Yen, which slows down to a crawl near the beginning of 1995. Based on the case I believe it is safe to assume a minor depreciation to the Yen for Sep 1995.

Based on the assumptions above I project revenues for 1995 to be $93,939,025.90

4. Similar to question 3, this question require me to make several assumptions. I’ve used the exact same assumptions as the ones made in question 3.

Using these assumptions, I project net income to be $8,874,315.89. This means that the EPS for 1995 is $0.74 which reflects a 20.71% growth year over year.
The full calculation and income statement for 1995 is shown in the attached spreadsheet. 5. The statement is accurate. If Diva Shoes hedges with either an option or a forward contract that locks the exchange rate of the Yen to 92 Yen/Dollar the EPS growth will still be above 15%. Full calculation can be shown in the attached spreadsheet.

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