The questions are discrete and answerable in their own right. Each one should be answered separately. They are not a guide to an overall case answer. Please state your assumptions. 1) What is the value that can be created by a combination of Jaguar with either Ford or GM? What are the sources of such value? (You do not need numbers, just a discussion of potential synergies). 2) How much is Jaguar worth (price per share) and to which exchange rates is Jaguar exposed? (You can use the enclosed excel spreadsheet that has been constructed for you. This means that you do not have to pay attention to the Jaguar plc 1989 PDF Exhibit 6. Just use the enclosed spreadsheet and interpret the entries to see where the exposure comes from. In other words, please look at Jaguar’s net worth as per the spreadsheet and interpret how it has been constructed, as opposed to changing the parameters in the spreadsheet). 3) Can you classify the exchange rate exposure into economic, transaction, and translation exposure? 4) Now, please consider alternative currency scenarios. Assume that the interest rates change and therefore the exchange rates vary ($, Y, DM and BP). Analyze the cases for different currencies separately: What would happen in the case the $ interest rate increases by 25% and the other rates stay fixed. Then, consider the case the DM interest rate increases by 25% and the other stay fixed. Finally, consider the case the Y interest rate increases by 25% and the other stay fixed. They, still considering one change at the time, consider what would happen in the case they drop by 10%? Assume also that prices and inflation do not change. a) Hint1: DCFs can be based on Exhibit 7. b) Hint2: Risk Premium is 7%. c) You can use the spot exchange rates on Exhibit 9. 5) What is the currency Jaguar should manage more? 6) How would you hedge? (Please provide an overall hedging plan, considering both financial and economic hedging alternatives. You do not have to go into numbers). 7) Assume that Ford acquires Jaguar. From the perspective of the US-based Ford shareholder, should Ford hedge Jaguar’s exposure?
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