Stock Market Liberalization
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Case 3
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Multinational Corporate Finance
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Fall 2012
Jaguar plc, 1984
Harvard Business School Prod. #: 290005-PDF-ENG. http://hbr.org/product/jaguar-plc-1984/an/290005-PDF-ENG?Ntt=Jaguar%2520plc%252C%25201984
Case Questions 1. Consider Jaguar’s exchange rate exposure. To which currencies is Jaguar exposed? What are the sources of these exposures? How would the company be affected by a 25% decline in the value of the dollar? 2. How should Jaguar’s shares be priced? Estimate the likely value of Jaguar’s equity in the following scenarios: a. no change in the real exchange rate between the dollar and the pound, b. a 25% drop in the real value of the dollar against the pound, c. a 10% rise in the real value of the dollar against the pound. 3. Quantify Jaguar’s exposure in 1984 to the real dollar/sterling exchange rate (change in value when exchange rate changes by 1%). How large is it compared to Jaguar’s sales? Assets? Equity value? 4. Should Jaguar attempt to hedge its dollar exposure? Why or why not? What methods are available for hedging this exposure? What are the costs and benefits of each?
Case Preparation Notes
It is not possible to delegate the case preparation to members of your group. Even though you are allowed to work together in groups, you should independently be able to attempt to discuss all of the issues yourself. Therefore, you should read through each case in detail. Note the central issues the case addresses. Analyze these issues using any relevant techniques and tools along with your common sense. What are the ”key drivers”?. Note down the recommendations you would make and how you would implement them. It is important to note any limitations, risks and uncertainty that your recommendations entail. If you get stuck try and note down why you are stuck:
Case 3
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Multinational Corporate Finance
-------------------------------------------------
Fall 2012
Jaguar plc, 1984
Harvard Business School Prod. #: 290005-PDF-ENG. http://hbr.org/product/jaguar-plc-1984/an/290005-PDF-ENG?Ntt=Jaguar%2520plc%252C%25201984
Case Questions 1. Consider Jaguar’s exchange rate exposure. To which currencies is Jaguar exposed? What are the sources of these exposures? How would the company be affected by a 25% decline in the value of the dollar? 2. How should Jaguar’s shares be priced? Estimate the likely value of Jaguar’s equity in the following scenarios: a. no change in the real exchange rate between the dollar and the pound, b. a 25% drop in the real value of the dollar against the pound, c. a 10% rise in the real value of the dollar against the pound. 3. Quantify Jaguar’s exposure in 1984 to the real dollar/sterling exchange rate (change in value when exchange rate changes by 1%). How large is it compared to Jaguar’s sales? Assets? Equity value? 4. Should Jaguar attempt to hedge its dollar exposure? Why or why not? What methods are available for hedging this exposure? What are the costs and benefits of each?
Case Preparation Notes
It is not possible to delegate the case preparation to members of your group. Even though you are allowed to work together in groups, you should independently be able to attempt to discuss all of the issues yourself. Therefore, you should read through each case in detail. Note the central issues the case addresses. Analyze these issues using any relevant techniques and tools along with your common sense. What are the ”key drivers”?. Note down the recommendations you would make and how you would implement them. It is important to note any limitations, risks and uncertainty that your recommendations entail. If you get stuck try and note down why you are stuck: