'Ariel case study Essay\r'

'Case analysis:\r\n argument of problem:\r\n1. First of all Martin have to occur out if the federation should improve the equipment. 2. If they decide to improve, then, which property should they make the purchase in? 3. How tush they work out what their expected rate of return at the close to certainty? Analysis:\r\nThe general question is if the company should make the improvement or not, and if they do (assuming the externalise is beneficial) which currency will give the highest profit? Since it is measured that the cost will drop when implementing the new equipment, we fancied that the capital flow equals the difference between the deuce figures. The NVP is 2,960,532 pesos, but Martin wanted to know whether to make the investing in Euros or Pesos. When we calculated the NPV in euros we can use two different approaches. You can stimulate the NPV (Euro) by either translate NPV (Peso) by dividing it by 15,99.\r\nHowever, the better solution is to use the expected in sto re(predicate) spot rate on every cash flow, because this estimate is more accurate. Inflation rate is primal to look at because, if the inflation rate changes, the NPV excessively changes and that will effect their decision. So, they have to consider the guess of inflation changes. If the inflation rate drops to 3% in Mexico, the purchase in Euros is more profitable, because the Peso is strengthened. some other variable to consider when deciding between Euros and Pesos is the risks concerning prophecy of future currency rates. The short-term exposure, long-term exposure, the political risk and translation exposure could all restore the inflation. Recomendations :\r\nThe company should go through with the project, because the net precede value is positive. However, they should choose which currency to purchase the equipment in carefully, due to the uncertainty of the exchange predictions. They need to incorporate all the risks into account.\r\n'