18 Sep Discuss how Jaguar could manage this exposure using forward contracts.(5?) What type of positions would they take and for how long?
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Only 1 question Due in 24 hrs.
Please just answer ***QUESTION 4***
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”)
Valuation framework
| Projected | |||
| 1983 | 1984 | ||
| 1 | Dollar/sterling | 1.350 | |
| United States | |||
| 2 | Growth, units (%) | 12.0% | |
| 3 | Volume, units | 15260 | 17091 |
| 4 | Inflation (%) | 3.0% | |
| 5 | US$ price/unit | 25631 | |
| 6 | sales, dollars | 438065 | |
| 7 | sales, sterling | 324492 | |
| Rest of the world | |||
| 8 | Growth, units (%) | 12.0% | |
| 9 | Volume, units | 13207 | 14792 |
| 10 | Inflation (%) | 5.0% | |
| 11 | price/unit , sterling | 17284 | |
| 12 | sales, sterling | 255662 | |
| 13 | var. cost of sales/unit | 13521 | |
| 14 | NWC | 30000 | |
| 15 | discount rate | 18.0% | |
| Total sales, units | 31883 | ||
| 16 | Total revenues | 580154 | |
| 17 | Var. cost sales | 431091 | |
| 18 | Depreciation | 10000 | |
| 19 | R&D | 18000 | |
| 20 | Distribution | 13300 | 13965 |
| 21 | Administration | 22000 | 23100 |
| 22 | Total Costs | 496156 | |
| 23 | EBIT | 83999 | |
| 24 | Tax | 29400 | |
| 25 | EBIAT | 54599 | |
| 26 | Depreciation | 10000 | |
| 27 | Operating cash flow | 64599 | |
| 28 | Increase NWC | 30000 | |
| 29 | Capital Expenditure | 11500 | |
| 30 | FCF | 23099 | |
| 31 | Terminal value | ||
| discount factor | 1.00 | ||
| 32 | PV, FCF | 23099 | |
| 33 | Value of firm (sterling) |
&A
Page &P
EXHIBITS
| EXHIBIT 1 | Balance Sheets (in millions of pounds) | |||||||||
| — December 31, — | March 31, | |||||||||
| 1981 | 1982 | 1983 | 1984 | |||||||
| Fixed Assets: | – | – | – | – | ||||||
| Tangible Assets | £ | 55.7 | 87.3 | 112.0 | 118.6 | |||||
| Investments in related companies | — | — | 0.4 | 0.4 | ||||||
| TOTAL FIXED ASSETS | 55.7 | 87.3 | 112.4 | 119.0 | ||||||
| Current Assets: | ||||||||||
| Stocks | 56.3 | 68.8 | 62.7 | 76.5 | ||||||
| Debtors | 26.3 | 29.6 | 33.8 | 42.5 | ||||||
| Cash & short-term deposits | 1.3 | 6.9 | 29.5 | 11.5 | ||||||
| TOTAL | 83.9 | 105.3 | 126.0 | 130.5 | ||||||
| Creditors: Amount falling due | ||||||||||
| within one year | 51.3 | 81.1 | 128.8 | 127.5 | ||||||
| Net Current Assets (Liabilities) | 32.6 | 24.2 | (2.8) | 3.0 | ||||||
| [PGDN] FOR MORE OF EXHIBIT 1… | ||||||||||
| Total Assets Less Current | ||||||||||
| Liabilities | 88.3 | 111.5 | 109.6 | 122.0 | ||||||
| Creditors: Amounts falling due | ||||||||||
| in more than one year (a) | 1.2 | 17.6 | 43.9 | 58.0 | ||||||
| NET | 87.1 | 93.9 | 65.7 | 64.0 | ||||||
| Capital and Reserves: | ||||||||||
| Called up share capital | 45.0 | |||||||||
| Other Reserves | 10.3 | 2.8 | ||||||||
| Profit and loss account | 55.4 | 16.2 | ||||||||
| BL Group funding balance (b) | 87.1 | 93.9 | ||||||||
| NET | £ | 87.1 | 93.9 | 65.7 | 64.0 | |||||
| (a) These obligations consisted primarily of capitalized leasing | ||||||||||
| obligations and warranty expense accruals. | ||||||||||
| (b) The BL Group funding balance was made up of certain loans from | ||||||||||
| BL Group which represented the capital and reserves of the Jaguar | ||||||||||
| business before the Jaguar Group acquired that business with effect | ||||||||||
| from January 1, 1983. | [PGDN] FOR EXHIBIT 2… | |||||||||
| EXHIBIT 2 | Income Statements (in millions of Pounds) | Quarter | ||||||||
| ended | ||||||||||
| — Years ended December 31, — | March 31, | |||||||||
| 1980 | 1981 | 1982 | 1983 | 1984 | ||||||
| Turnover | – | – | – | – | – | |||||
| Continuing activities | 166.4 | 195.2 | 305.6 | 472.6 | 143.3 | |||||
| Discontin. activities | 83.6 | 48.3 | 4.3 | — | — | |||||
| TOTAL | 250.0 | 243.5 | 309.9 | 472.6 | 143.3 | |||||
| Cost of sales (a) | (273.7) | (245.6) | (258.4) | (369.7) | (108.8) | |||||
| GROSS PROFIT/(LOSS) | (23.7) | (2.1) | 51.5 | 102.9 | 34.5 | |||||
| Distribution costs | (7.3) | (7.8) | (13.8) | (13.3) | (4.4) | |||||
| Administrative expenses | (8.1) | (11.2) | (14.8) | (22.0) | (6.2) | |||||
| Research and dvpt. cost | (5.2) | (9.8) | (12.8) | (16.5) | (5.7) | |||||
| OPERATING PROFIT/(LOSS) | (44.3) | (30.9) | 10.1 | 51.1 | 18.2 | |||||
| Interest | (3.0) | (0.8) | (0.5) | (1.1) | (0.2) | |||||
| PROFIT/(LOSS) ON ORDINARY | ||||||||||
| ACTIVITIES BEF. TAX. | (47.3) | (31.7) | 9.6 | 50.0 | 18.0 | |||||
| Tax. on ord. activities | 1.3 | — | (0.1) | (0.5) | (0.5) | |||||
| PROFIT/(LOSS ON ORDINARY | ||||||||||
| ACTIVITIES AFT. TAX. | (46.0) | (31.7) | 9.5 | 49.5 | 17.5 | |||||
| Extraordinary items | (6.2) | (4.6) | (3.0) | — | (14.2) | |||||
| PROFIT/(LOSS) FOR THE | ||||||||||
| FINANCIAL PERIOD | (52.2) | (36.3) | 6.5 | 49.5 | 3.3 | |||||
| Rates of exchange – Realized profits on exchange, together with | ||||||||||
| losses on exchange, whether realized or unrealized, which arise on | ||||||||||
| settlement of overseas liabilities are included in trading results. | ||||||||||
| Profit and loss account items of foreign subsidiaries are translated | ||||||||||
| into sterling at the average rate of exchange for each monthly | ||||||||||
| accounting period. Assets and liabilities, including outstanding | ||||||||||
| forward exchange contracts, are translated into sterling at the | ||||||||||
| rates of exchange ruling at the end of the financial period. | ||||||||||
| (a) Includes depreciation charges of £5.6 million in 1980, £7.3 | ||||||||||
| million in 1981, £7.2 million in 1982, £8.6 million in 1983 and £2.5 | ||||||||||
| million for the first quarter of 1984. | [PGDN] FOR EXHIBIT 3… | |||||||||
| EXHIBIT 3 | Jaguar Sales by Models and Markets; December 31 | |||||||||
| (in number of vehicles) | ||||||||||
| 1980 | 1981 | 1982 | 1983 | |||||||
| Model Range: | – | – | – | – | ||||||
| Series III saloons | 13851 | 12,666 | 17,733 | 23,413 | ||||||
| XJ-S sports cars | 1526 | 1,108 | 3,131 | 4,886 | ||||||
| Limousines | 92 | 159 | 143 | 168 | ||||||
| TOTAL JAGUAR | 15,469 | 13,933 | 21,007 | 28,467 | ||||||
| MORE—> | ||||||||||
| 1980 | 1981 | 1982 | 1983 | |||||||
| Geographical Area: | – | – | – | – | ||||||
| United States | 2,518 | 16% | 5,154 | 37% | 9,971 | 47% | 15,260 | 54% | ||
| United Kingdom | 6,135 | 40% | 5,196 | 37% | 6,415 | 31% | 7,236 | 25% | ||
| West Germany | 1,612 |
