Groupe Ariel SA of France is considering a project in Mexico. They need to analyze the net present value of the project, keeping in mind the exchange rates between Mexican Pesos and Euros in order to maximize their return. They also need to keep in mind the inflation rates over time and the risks involved with this type of investment.
Groupe Ariel is recycling old equipment in Mexico. They will need to use pesos to calculate their cash flows to see how this part of their project will impact their finances. They also need to convert this peso amount into Euros.
We began the analysis by computing the Net Present Value (NPV) of Ariel-Mexico’s recycling equipment. This was done by …show more content…
As such they want to know the results of the NPV calculations with this new inflation rate. To find this answer, we recalculated the numbers in steps one and two with a new inflation rate and got much higher NPVs for both Euros and Pesos. This can be seen in the chart below:
| Value | Change | Peso NPV | 177028.70 | + 291030.69 | Euro NPV | 110695.98 | + 18200.79 |
Please see appendix D for the complete calculations for this problem.
Groupe Ariel is expecting a real depreciation of the peso against the Euro, and needs to account for this when planning for the project. Specifically, they need to know what the peso deprecation effect on the NPVs will be for problems 1 and 2. Our result is as follows:
To calculate the answer, we found the new cash flows based on an exchange rate of MXN22.00/EUR in 2009 and MXN25.00/EUR for years 2010-2018. If the peso depreciates against the Euro in this fashion, the resulting Euro NPV will be reduced to -690.26. When an NPV is negative, a company typically should not go forward with a project.
Please see appendix E for complete calculations.
Finally, Groupe Ariel needs to decide if they should go ahead with the project, and what currency they should finance the project in.
First, we will analyze the cash flows to determine whether or not Groupe Ariel should do the project. In the first four problems, the NPVs were positive, meaning that Groupe Ariel should go ahead with the