Corp Fin

Федеральное государственное бюджетное образовательное учреждение высшего профессионального образования РОССИЙСКАЯ АКАДЕМИЯ НАРОДНОГО ХОЗЯЙСТВА И ГОСУДАРСТВЕННОЙ
СЛУЖБЫ ПРИ ПРЕЗИДЕНТЕ РФ

ИНСТИТУТ БИЗНЕСА И ДЕЛОВОГО АДМИНИСТРИРОВАНИЯ

ФАКУЛЬТЕТ МЕЖДУНАРОДНОГО БИЗНЕСА И ДЕЛОВОГО АДМИНИСТРИРОВАНИЯ

Groupe Ariel S.A. Case

Artyom Kirillov
Polina Dzyuba

Moscow
2011

Groupe Ariel S.A. : Parity Conditions and Cross-Border Valuation
Question 1
There are two ways to compute the projects NPV. The first approach is to calculate it in
Mexican Pesos and then change the resulting figure into Euros at the spot rate of MXN15.99/EUR. Note that the discount rate that we have used was the yield on the long-term peso-denominated corporate bonds. Below is the screenshot showing how we have done this.
Computing NPV in Mexican Pesos (resulting NPV in Euros is 138,902)

Question 2
The second approach is to transfer each cash flow from Mexican Pesos into Euros using the future rates (e.g. in year 5 we use the rate for this particular year rather than the spot rate). Note that the discount rate that we have used was the yield on the French 10-year government bonds. Once again, below you will find a screenshot.
Computing NPV in Euros (resulting NPV in Euros is 144,633)

In case the required rate of return on the project is higher than that on the 10-year government bonds (for instance, 8%), the resulting NPV will be lower than the one we received in our previous calculations. Nonetheless, it is still positive so the project is worth investing in.
Computing NPV in Euros (resulting NPV in Euros is 92,495, assuming that the project’s hurdle rate is 8%)

Question 3
In the first set of calculations we got the NPV calculated in Mexican Pesos was slightly lower than that computed in Euros (138,902 compared to 144,663). This did not, however, have any effect on the decision whether to accept the project or not. When the discount rate was raised to 8%, the