# Refer to the Case on Ariel S.A.

Anonymous
timer Asked: Apr 6th, 2016

Question description

Refer to the Case on Ariel S.A.

Required:

1.  Compute the NPV of the Recycling Equipment in Pesos and then translate the same to Euros. Assume expected future inflation rate in France is 3% per year.

2.  Compute the NPV in Euro by translating the cash flows from pesos to Euros at the expected future spot exchange rates. Note that the Ariel’s Euro hurdle rate is 8% for a project of this type. Assume inflation in Mexico and France to be 7% and 3% respectively

3.  Compare the two sets of NPV as calculated in 1) and 2) above and explain why they are different. Which approach should Arnaud Martin use?

4.  Suppose Mexico’s inflation is projected at 3% instead of 7% (France remaining the same as 3%), how does this affect your NPV calculations?

5.  Suppose Martin expects a significant real depreciation of the Peso against the Euro. How should Martin incorporate such expectations into his NPV calculation? (Assume inflation rate will be 3% in both countries). What is the effect on the NPV under each of the approaches in questions 1 and 2?

(Top Tutor) Studypool Tutor
School: Purdue University
Studypool has helped 1,244,100 students
flag Report DMCA

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors