These are the questions for this case study:
• Q1: Compute the NPV of Ariel-Mexico’s recycling equipment in pesos by discounting incremental peso cash flows at a peso discount rate. How should this NPV be translated into Euros? Assume expected future inflation rate for France is 3% per year.
• Q2: Compute the NPV in Euros by translating the project’s future peso cash flows into Euros at expected future spot exchange rates. Note that Ariel’s hurdle rate for this type of project is 8%. Assume that inflation rates are expected to be 7% in Mexico and 3% in France.
• Q3: Compare the two sets of calculations and the corresponding NPV’s How and why do they differ? Which approach should Martin use?
• Q4: Suppose Mexican inflation is projected at 3% instead of 7% per year (assume French inflation remains the same at 3%) Calculate NPV of the new equipment.
• Q5: Suppose Ariel expects a significant real depreciation of the peso against the Euro. How should Martin incorporate such an expectation into his NPV analysis? (Assume both countries have 3% inflation). What is the effect on the concluded NPVs under each of the two approaches in question 1 and 2?
• Q6: Should Ariel approve the equipment purchase?
Type of service-Academic paper writing
Type of assignment-Case study
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Language style-US English