Groupe Ariel S.A. Essay

AbstractGroupe Ariel is a smart set that manufactures and sells printers, copiers and other document production equipment. The causal agent focuses on an investment project in the companys Mexican marcher that would expand operations into a invigo prized market, something it been slow to do in the past. Groupe Ariel believes its products affirm better durability for a pull down after-sales service exists and markets it as a competitive advantage. The company is now considering refilling the manual equipment used for cycle in Mexico by new equipment that requires less genuine and labor appeals.1. Compute the incremental peso silver flows for the life of the project.The incremental property flows of the next 10 years should be measured. The initial property forthflow is the re familiarize of investment in the new equipment (3,500,000 Pesos). Also, exchange the manual equipment for cash esteem of 175,000 Pesos is subtracted from the cost of the new equipment to arrive at the initial force out cash outlay of 3,325,000 Pesos. For the cash flows in the next 10 years, it is measured by taking the leaving of the cost of the manual method and the new reflexive equipment. Next, to arrive at after- revenue enhancement incremental cash flows we add back depreciation cost, which is non-cash write off (if total cost does include depreciation) and descend tax. The new equipment would have a helpful life of 10 years and would be depreciated under the straight-line method for both tax and financial reporting purposes. The corporate tax rate is 35%.2. Compute the net present value of Ariel-Mexicos recycling equipment in pesos by cuting the incremental peso cash flows at a peso tax write-off rate.The present value of on the whole these cash inflows and outflows can be compute by discounting them at 8.5%, which was calculated by utilize documentary peso long-term borrowing rate of 2.2% and a real euro rate of 1.8%. The NPV can be calculated by taki ng the sum of present values of all the cash flows. This NPV comes out to be 3,754,474 Pesos.3. Compute the NPV in Euros by translating the projects prospective peso cash flows into Euros at the expected future spot grade.We restate the projects future peso cash flows into Euros using the expected future spot rates estimated by the international business payoff in the articlerise to 20.00 by 2011 from current 15.99 exchange rate and upwardly of 25.00 in 2013-2018. We then discount the cash flows in Euros at 8% (the discount rate for similar projects in France) and sign the NPV in Euros as 118,903 Euros. 4. Translate the NPV in pesos calculated in 2. To Euros and compare to the repartee in 3. Comment on your findings.We translate the NPV in pesos calculated in 2 to Euros using the spot exchange rate on June 23 at MXN15.99/EUR. It gives an NPV of 234,801 in Euros, which is much higher than our number in question 3 as 118,903 Euros. The difference is driven by prediction of Peso s against Euros, and a slight different discount rate. From our analysis, we front that expectation of steep depreciation in pesos and a slightly higher discount rate in Mexico result in a much higher NPV value if we translate the pesos into Euros now.