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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.

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Exacta, s.a . case study

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  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

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