Projected
		1983	1984	1985	1986	1987	1988	1989		Percentage
1	Dollar/sterling		1.350	1.324	1.324	1.324	1.324	1.324
	United States
2	Growth, units (%)		12.0%	15.0%	15.0%	15.0%	15.0%	15.0%	Increases by 15%
3	Volume, units	15260	17091	19655	22603	25994	29893	34377
4	Inflation (%)		3.0%	3.0%	3.0%	3.0%	3.0%	3.0%
5	US$ price/unit		25631	25631	25631	25631	25631	25631	Assumed to be same
6	sales, dollars		438065	503774	579340	666241	766178	881104
7	sales, sterling		324492	380412	437474	503095	578559	665343		0.56
	Rest of the world
8	Growth, units (%)		12.0%	11.0%	11.0%	11.0%	11.0%	11.0%	Assumed to decrease due to competition
9	Volume, units	13207	14792	16419	18225	20230	22455	24925
10	Inflation (%)		5.0%	5.0%	5.0%	5.0%	5.0%	5.0%	Assumed to be same
11	price/unit , sterling		17284	17284	17284	17284	17284	17284
12	sales, sterling		255662	283785	315001	349651	388113	430806		0.44
13	var. cost of sales/unit		13521	13521	13521	13521	13521	13521
14	NWC		30000	25000	25000	25000	25000	25000
15	discount rate		18.0%	17.5%	17.5%	17.5%	17.5%	17.5%	Cost of capital decreases
	Total sales, units		31883	36074	40828	46223	52348	59302
16	Total revenues		580154	664197	752475	852746	966672	1096149
17	Var. cost sales		431091	487754	552037	624986	707793	801817
18	Depreciation		10000	10000	10000	10000	10000	10000
19	R&D		18000	25000	25000	25000	25000	25000	High R&D costs
20	Distribution	13300	13965	14663	15396	16166	16975	17823
21	Administration	22000	23100	24255	25468	26741	28078	29482
22	Total Costs		496156	561672	627901	702893	787846	884123
23	EBIT		83999	102525	124574	149853	178827	212026
24	Tax		29400	35884	43601	52449	62589	74209
25	EBIAT		54599	66641	80973	97404	116237	137817
26	Depreciation		10000	10000	11000	12100	13310	14641	Increases by 10%
27	Operating cash flow		64599	76641	91973	109504	129547	152458
28	Increase NWC		30000	-5000	0	0	0	0
29	Capital Expenditure		11500	35000	40250	46288	53231	61215	Increase by 15%
30	FCF		23099	46641	51723	63217	76317	91243
31	Terminal value		384987	717554	795738	972569	1174104	1403734
	discount factor		1.00	1.00	1.00	1.00	1.00	1.00
32	PV, FCF		408087	764195	847461	1035786	1250421	1494977
33	Value of firm (sterling)		302,286	577,062	639,938	782,147	944,223	1,128,893
Forecast of $/ rate
Current rate	1.35
Inflation in US	3%
Inflation in Britain	5.00%	assumed
Forecasted rate	1.324
	Instructions for Case Jaguar plc, 1984** 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. Below is a list of questions you must address in your case analysis. For each answer, be sure to attach spreadsheets showing how you obtained the answer and describe any relevant calculations in your write-up. Be sure to be as clear and concise as possible. 1) (10) Discuss about Jaguars exchange rate exposures. (5) To which currencies is Jaguar exposed? (1) What are the sources of these exposures? (4) 2) (40) How much is Jaguar worth in sterling at the beginning of 1984? (10) In order to focus on the issues related to risk management we provide a spreadsheet that with a framework for the valuation and the projected free cash flow for 1984 (see Jaguar.xls and the assumptions used in the next page). To finish the valuation you should make your own assumptions for 1985 and beyond. In particular, you should determine what are reasonable forecasts for the value of the $/ rate.(20) Furthermore, thoughts must be given to how these exchange rates will affect the prices and quantity of Jaguar cars sold in the U.S.(10) 3) (20) 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?(5) What is Jaguars market value exposure (and delta) with respect to the real dollar/sterling exchange rate? (5)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? (5) Discuss the economic reasons for the size of this exposure. (5) 4) (10) Discuss how Jaguar could manage this exposure using forward contracts.(5) What type of positions would they take and for how long?(5) 5) (20) Consider the exposure (delta) of Jaguar to the $/ rate for a U.S. investor rather than a U.K.investor (10). Is the exposure to the dollar-based owners the same as that of the poundbased investors above? Why or why not? (10)

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.

'SOME USEFUL TIPS: 1) Exchange Rate Exposure: Transaction exposures and Economic exposure. 2) Worth means Value of Asset. Procedures of calculating Value of Asset can be found in the PPT. 3) The value in spreadsheet is in thousand. For the data of 1983 4) Dollar/sterling of 1983 is available in Exhibits 7. ( Use the fourth quarter exchange rate of 1983) 5) $ price/unit is assumed to rise at the inflation rate. 6) NWC is available in Exhibit 1. 7) R&D is available in Exhibit 2. 8) Depreciation is available in Exhibit 2, notes (a). 9) Total sales, units can be found in Exhibits 3. 10) Var. cost sales is available in Exhibit 2. Note: cost of sales=369.7-8.6=361.1 11) Inflation rate of US and UK in 1983 is available in Exhibit 8. 12) EBIT is available in Exhibit 2. 13) Tax rate is 35%. 14) Increase NWC is the difference between 1983 NWC and 1982 NWC. 15) Capital Expenditure is the difference between Fixed Assets of different years. 16) Discount factor is 1/ (1+18%). 17) Value of firm=PV FCF-long term debt ( long term debt is available in Exhibit) 18) Terminal Value =CF(t+1)/(k-g) K=18%, g=12%

For the estimate from 1985 to 1989 1) Use PPP to estimate the exchange rate. For example: S1985=(1+$)/(1+sterling)* S1984 2) Assume long term debt and liabilities have not changed