CORPORATE FINANCE 6 CORPORATE FINANCE Corporate Finance Authors
Added on 2021-04-20
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Running head: CORPORATE FINANCECorporate FinanceName of the Student:Name of the University:Authors Note:
CORPORATE FINANCE1Table of Contents1. Depicting how value will be created by combining Jaguar and Ford:...................................22. Calculating share price of Jaguar suing DCF method:...........................................................23. Evaluating prices of Jaguar under different scenarios:..........................................................43a. Increase in $ interest rate by 25%:.......................................................................................43b. Increase in DM interest rate by 25%:...................................................................................43c. Increase in Yen interest rate by 25%:...................................................................................43d. Decrease in $ interest rate by 10%:......................................................................................53e. Decrease in DM interest rate by 10%:..................................................................................53f. Decrease in Yen interest rate by 10%:..................................................................................54. Depicting the currency Jaguar should manage more:............................................................65. Stating the exposure of Jaguar to dollar:................................................................................76. Stating how much should jaguar hedge, while describing financial and industrial hedging:87. Depicting the exposure of Jaguar to Yen:..............................................................................98a. Stating which exchange rate is Jaguar exposed:..................................................................98b. Depicting the source of each exposure:...............................................................................98c. Stating which exposure should Ford care about:................................................................108d. Stating should Ford hedge:.................................................................................................10Reference and Bibliography:....................................................................................................12
CORPORATE FINANCE21. Depicting how value will be created by combining Jaguar and Ford:Jaguar and Ford mainly fall under automobile industry and are considered competitorsof each other. Hence, the acquisition of Jaguar could create the highest value for Ford, whichmight help the company increasing value. In addition, the values will only be created with thehelp of synergies that will be created by the company with the acquisition process. Thisacquisition process might mainly help in generating the levels of synergies in production, andrevenue stream that could create value for Ford. Moreover, the combination of Jaguar andFord could allow both companies to combine their production and dealership. This could helpin generating high level of return from investment. In this context, Aliu, Pavelkova andDehning (2017) stated that companies with the help of acquisitions and mergers can createvalue by combining their operations and increase the overall profitability.In addition, the value will be created by combing the production system of both thecompanies and reduce the actual cost of production. This value creation might help thecompany in declining the costs and increasing the level of returns. Therefore, the combinedvaluation of the company could help in generating the level of returns from investment.Furthermore, the combination could help in generating high level of sales for the company, asthe combined dealership would increase the sales of the firm, while reducing the actual costof production. This combined valuation would allow both the companies to generate highlevel of synergies and valuation for investment. Beshears et al. (2016) argued that without theidentification of synergies companies are not able to create the relevant value, which mightreduce financial stability of the combined company.2. Calculating share price of Jaguar suing DCF method:Period123456
CORPORATE FINANCE3Particulars199019911992199319941995Turnover (in millions):United States - in$$850.00$1,076.90$1,364.30$1,728.40$2,189.70$2,774.20Exchange Rate $/£1.6151.6151.6151.6151.6151.615United States - in ££526.32£666.81£844.77£1,070.22£1,355.85£1,717.77Europe - in DM434572.7755.6997.11315.61735.9Exchange Rate DM/£3.0223.0223.0223.0223.0223.022Europe - in ££143.61£189.51£250.03£329.95£435.34£574.42Total Turnover in US & Europe£669.93£856.32£1,094.80£1,400.16£1,791.19£2,292.19United Kingdom£324.00£404.80£505.80£632.10£789.80£986.80Rest of World£172.80£241.30£337.00£470.60£657.20£917.80Total Turnover - in ££1,166.73£1,502.42£1,937.60£2,502.86£3,238.19£4,196.79Cost of Sales-£1,045.00-£1,350.40-£1,730.90-£2,222.10-£2,829.50-£3,608.80Gross Profit£121.73£152.02£206.70£280.76£408.69£587.99Distribution, Administration and R&D Costs-£122.00-£147.30-£177.90-£214.80-£259.40-£313.20Net Operating Profit-£0.27£4.72£28.80£65.96£149.29£274.79Increase in Net Working Capital-113.2-34.5-45.1-59-77.3-101.5Free Cash Flow-£113.47-£29.78-£16.30£6.96£71.99£173.29Discount Rate6.72%6.72%6.72%6.72%6.72%6.72%Discounted FCF-£106.33-£26.15-£13.41£5.37£52.01£117.31Total of Discounted FCFs£28.80ParticularsValueValue of Company after 1995 £2,579.13PV of Value after 1995£1,745.91
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