{ "key_pair_value_system": true, "answer_rating_count": "", "question_feedback_html": { "html_star": "", "html_star_feedback": "" }, "answer_average_rating_value": "", "answer_date_js": "2024-06-05T15:12:23-04:00", "answer_date": "2024-06-05 15:12:23", "is_docs_available": "", "is_excel_available": "", "is_pdf_available": "", "count_file_available": 0, "main_page": "student_question_view", "question_id": "2300559", "url": "\/study-help\/questions\/in-july-1984-the-british-government-decided-to-privatize-jaguar-2300559", "question_creation_date_js": "2024-06-05T15:12:23-04:00", "question_creation_date": "Jun 05, 2024 03:12 PM", "meta_title": "[Solved] In July 1984, the British Government deci | SolutionInn", "meta_description": "Answer of - In July 1984, the British Government decided to privatize Jaguar plc. Jaguar sold over 50 % of its cars in the United | SolutionInn", "meta_keywords": "july,1984,british,government,decided,privatize,jaguar,plc,sold,50,cars,united", "question_title_h1": "In July 1984, the British Government decided to privatize Jaguar plc. Jaguar sold over 50 % of its cars in the United States, but its", "question_title": "In July 1984, the British Government decided to privatize Jaguar plc. Jaguar", "question_title_for_js_snippet": "In July 1984, the British Government decided to privatize Jaguar plc Jaguar sold over 50 of its cars in the United States, but its production was confined to Britain, so it was subject to considerable exchange rate exposure Your task is to take into account the exposure in pricing the shares of Jaguar and value how much the firm is worth under several exchange rate scenarios You are a security analyst responsible for following Jaguar's stock after it floats (Assume the company had 100 million shares outstanding ) What is your estimate of Jaguar's stock price given a 10 drop in the real value of the dollar What is Jaguar's market value exposure (and delta) with respect to the real dollar sterling exchange rate What is Jaguar's free cash flow exposure (and delta) for the years 1985 to 1989 with respect to the real dollar sterling exchange rate Discuss the economic reasons for the size of this exposure ASSUMPTIONS AND CASH FLOW STRUCTURE Fixed Costs Capital expenditure is assumed to be 11 5 million in 1984 and rises by 15 per year Depreciation for 1984 is assumed to be 10 million (approximately 10 of fixed assets at beginning of 1984) and continues at 10 of the running balance of fixed assets plus capital expenditures each year R D is 18 0 million in 1984 and rises at the growth rate of total sales (in ) Distribution and administrative expenses (both assumed to be fixed costs) rise at the inflation rate from their 1983 figures of 13 3 and 22 0 million respectively Variable Costs All of the costs of sales in the income statement, net of depreciation, is (arbitrarily) assumed to be variable costs Variable costs unit rise at the inflation rate Note that the 1983 volume used to determine unit costs should be production volume of 28 041, not sales volume Net Working Capital NWC in 1983 is unrealistically low for a stand alone company Assume that the balance in the NWC account is topped up to 30 million in 1984 and then grows at the growth rate of total revenues thereafter (the net addition each year from cash flow is the current balance times the change in total sales) Other assumptions Assume a tax rate of 35 We used a growth rate of 12 over unit sales in 1983 in estimating the 1984 sales figures The appropriate sterling discount rate is 18 , based upon average levels of inflation over the past few years Finally you may treat sales to the rest of the world as denominated in so as to eliminate the need to directly model other non $ currencies Pound inflation is forecast to continue at around 5 into the foreseeable future U S inflation is anticipated to average 3 per annum into the future Indicate explicitly what your assumptions are about Jaguar unit sales growth for the future ", "question_description": "
In July 1984, the British Government decided to privatize Jaguar plc. Jaguar sold over 50 % of its cars in the United States, but its production was confined to Britain, so it was subject to considerable exchange rate exposure. Your task is to take into account the exposure in pricing the shares of Jaguar and value how much the firm is worth under several exchange rate scenarios.<\/p>
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You are a security analyst responsible for following Jaguar's stock after it floats. (Assume the company had 100 million shares outstanding.)<\/p>
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***What is your estimate of Jaguar's stock price given a 10% drop in the real value of the dollar?***<\/p>
***What is Jaguar's market value exposure (and delta) with respect to the real dollar\/sterling exchange rate?***<\/p>
***What is Jaguar's free cash flow exposure (and delta) for the years 1985 to 1989 with respect to the real dollar\/sterling exchange rate?***<\/p>
***Discuss the economic reasons for the size of this exposure***<\/p>
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ASSUMPTIONS AND CASH FLOW STRUCTURE<\/p>
Fixed Costs - Capital expenditure is assumed to be 11.5 million in 1984 and rises by 15% per year. Depreciation for 1984 is assumed to be 10 million (approximately 10% of fixed assets at beginning of 1984) and continues at 10% of the running balance of fixed assets plus capital expenditures each year. R&D is 18.0 million in 1984 and rises at the growth rate of total sales (in ). Distribution and administrative expenses (both assumed to be fixed costs) rise at the inflation rate from their 1983 figures of 13.3 and 22.0 million respectively.<\/p>
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Variable Costs - All of the \"costs of sales\" in the income statement, net of depreciation, is (arbitrarily) assumed to be variable costs. Variable costs\/unit rise at the inflation rate. Note that the 1983 volume used to determine unit costs should be production volume of 28.041, not sales volume.<\/p>
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Net Working Capital - NWC in 1983 is unrealistically low for a stand-alone company. Assume that the balance in the NWC account is topped up to 30 million in 1984 and then grows at the growth rate of total revenues thereafter (the net addition each year from cash flow is the current balance times the % change in total sales).<\/p>
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Other assumptions - Assume a tax rate of 35%. We used a growth rate of 12% over unit sales in 1983 in estimating the 1984 sales figures. The appropriate sterling discount rate is 18%, based upon average levels of inflation over the past few years. Finally you may treat sales to the \"rest of the world\" as denominated in so as to eliminate the need to directly model other non-$ currencies. Pound inflation is forecast to continue at around 5% into the foreseeable future. U.S. inflation is anticipated to average 3% per annum into the future. Indicate explicitly what your assumptions are about Jaguar unit sales growth for the future.<\/p>
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