Procter & gamble

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Procter & gamble

By | October 2011
Page 1 of 9
- Procter & Gamble Company:
Mexico 1991 -

Contents

Summaryii
Introduction1
The Mexican Tax law1
The financing risk2
Analysis of the financing options3
Conclusion7
References8
Appendix 19
Appendix 210

Summary

We will in this case examine each of the four financing options thoroughly and weigh the different costs, risks and benefits associated with each alternative. In order to do this we have worked out an average total cost for the MTN loan and a NPV calculation for each financing options.

In addition we have performed a sensitivity analysis to see how the different risk factors affect each financing alternative. We evaluated a worst-case scenario and best-case scenario and calculated a difference from the expected scenario. This shows how sensitive each alternative is to changes in the assumptions and is therefore a measure of risk.

In the end we have weighed all these factors and reached a conclusion on which financing option to recommend for P&G (Mexico).

Introduction

Since 1987, Mexico has been recovering rapidly after the oil-price bubble burst in 1982, and achieved stability through changing policies. The policies were successful in reducing the inflation, the external debt and restoring economic confidence. By 1991 the Mexican economy had turned into a mixed economy and was becoming broad-based, and the dependence of petroleum had been reduced. The petroleum export contributed for 77 % of total export in 1982, but was reduced to 29 % of total export in 1991. With the major economic goals to lower the inflation, modernize the economy, and improve the living standards, Mexico was looking to stabilize itself (Case text).

The real GDP has increased from 1,7 % in 1987 to 3,9 % in 1990, and is expected to increase even more to 5,3 % in 1993, which indicates a healthy economic growth. In 1991 Mexico was also able to devalue the peso at rates lower than inflation, primarily because the demand for dollars was satisfied...