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The Florida International University College of Business Administration FIN4604: International Financial Management Fall 2012 Dr Q. Kang General...

Instructions for Case “Jaguar plc, 1984”**
In July 1984, the British Government decided to privatize Jaguar plc. Jaguar sold over
50 % of its cars in the United States, but its production was confined to Britain, so it
was subject to considerable exchange rate exposure. Your task is to take into account
the exposure in pricing the shares of Jaguar and value how much the firm is worth
under several exchange rate scenarios.
Below is a list of questions you must address in your case analysis. For each answer,
be sure to attach spreadsheets showing how you obtained the answer and describe
any relevant calculations in your write-up. Be sure to be as clear and concise as
possible.
1) (10’’)
 Discuss about Jaguar’s exchange rate exposures. (5’’)
 To which currencies is Jaguar exposed? (1’’) What are the sources of these
exposures? (4”)
2) (40”)
 How much is Jaguar worth in sterling at the beginning of 1984? (10”)
 In order to focus on the issues related to risk management we provide a
spreadsheet that with a framework for the valuation and the projected free
cash flow for 1984 (see Jaguar.xls and the assumptions used in the next page).
To finish the valuation you should make your own assumptions for 1985 and
beyond. In particular, you should determine what are reasonable forecasts for
the value of the $/£ rate.(20”)
 Furthermore, thoughts must be given to how these exchange rates will affect
the prices and quantity of Jaguar cars sold in the U.S.(10”)
3) (20”) You are a security analyst responsible for following Jaguar's stock after it
floats. (Assume the company had 100 million shares outstanding.)
 What is your estimate of Jaguar's stock price given a 10% drop in the real
value of the dollar?(5”)
 What is Jaguar’s market value exposure (and delta) with respect to the real
dollar/sterling exchange rate? (5”)What is Jaguar's free cash flow exposure
(and delta) for the years 1985 to 1989 with respect to the real dollar/sterling
exchange rate? (5”)
 Discuss the economic reasons for the size of this exposure. (5”)
4) (10”)
 Discuss how Jaguar could manage this exposure using forward contracts.(5”)
 What type of positions would they take and for how long?(5”)
5) (20”)
 Consider the exposure (delta) of Jaguar to the $/£ rate for a U.S. investor
rather than a U.K.investor (10”).
 Is the exposure to the dollar-based owners the same as that of the poundbased
investors above? Why or why not? (10”)

The Florida International University College of Business Administration FIN4604: International Financial Management Fall 2012 Dr Q. Kang General Instructions on Project The project analysis is due December 6, 11:59pm . Each group needs to submit only one written copy of the project analysis using the Blackboard’s Assignment Dropbox. Write down each group member’s name on the front page of the report. I will grade each group’s project analysis according to the Rubrics posted in the Blackboard. Each member of the group will receive the same grade. Groups will be formed by the professor within one week after this instruction is distributed. Each group typically consists of four students. Please check the Grade Center at the Blackboard to find out your group members. Note that you are responsible for setting up a scheme to coordinate each group member’s efforts on this project. Free-riders are NOT welcome . The group can vote with a majority to kick the free-rider out of his/her group – in that case, the one who is kicked out will receive zero grade on the project. You may find it useful to take a look at the slides: “jaguar_introduction.ppt”, available in the Blackboard, before you get started. Recommended Format of the Project Analysis [No need to follow!!] 1. I would suggest one format of the report as follows (obviously, you do not have to follow this format and BE CREATIVE): Part I: Introduction (background analysis) Part II: Models (like valuation model, pricing model, exchange rate determination model, exposure measurement and management model, etc…) Part III. Results (your empirical analysis and explanations); Part IV. Conclusions (to summarize main results); Part V. Appendix (basically spreadsheets/tables/figures); Part VI. References (if any, like newspapers, journals, articles, etc) 2. Some details about the written analysis: The bottom line is that you have to answer all 5 questions (page 2 of this Instruction) based on the given assumptions and cash-flow structure (page 3 of this Instruction). In case you need to make additional assumptions necessary for you to solve the problems, please state clearly those in the written report. Tips listed in page 4 of this Instruction offer some useful guidance to conduct analysis. The report should be double-spaced, 11- or 12- font-sized, and four-to-ten- page long (not including spreadsheets/tables/figures/references).
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2 Instructions for Case “Jaguar plc, 1984”** In July 1984, the British Government decided to privatize Jaguar plc. Jaguar sold over 50 % of its cars in the United States, but its production was confined to Britain, so it was subject to considerable exchange rate exposure. Your task is to take into account the exposure in pricing the shares of Jaguar and value how much the firm is worth under several exchange rate scenarios. Below is a list of questions you must address in your case analysis. For each answer, be sure to attach spreadsheets showing how you obtained the answer and describe any relevant calculations in your write-up . Be sure to be as clear and concise as possible. 1) (10’’) Discuss about Jaguar’s exchange rate exposures. (5’’) To which currencies is Jaguar exposed? (1’’) What are the sources of these exposures? (4”) 2) (40”) How much is Jaguar worth in sterling at the beginning of 1984? (10”) In order to focus on the issues related to risk management we provide a spreadsheet that with a framework for the valuation and the projected free cash flow for 1984 (see Jaguar.xls and the assumptions used in the next page). To finish the valuation you should make your own assumptions for 1985 and beyond. In particular, you should determine what are reasonable forecasts for the value of the $/£ rate.(20”) Furthermore, thoughts must be given to how these exchange rates will affect the prices and quantity of Jaguar cars sold in the U.S.(10”) 3) (20”) You are a security analyst responsible for following Jaguar's stock after it floats. (Assume the company had 100 million shares outstanding.) What is your estimate of Jaguar's stock price given a 10% drop in the real value of the dollar?(5”) What is Jaguar’s market value exposure (and delt a) with respect to the real dollar/sterling exchange rate? (5”)What is Jaguar's free cash flow exposure (and delta) for the years 1985 to 1989 with respect to the real dollar/sterling exchange rate? (5”) Discuss the economic reasons for the size of this exposure. (5”) 4) (10”) Discuss how Jaguar could manage this exposure using forward contracts.(5”) What type of positions would they take and for how long?(5”) 5) (20”) Consider the exposure (delta) of Jaguar to the $/£ rate for a U.S. investor rather than a U.K.investor (10”). Is the exposure to the dollar-based owners the same as that of the pound- based investors above? Why or why not? (10”)
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