The objective of the project is to provide quantitative assessment of corporate financial risk using C - VaR (Corporate Value-at-Risk) technique. The technique enables risk manager to obtain precise quantitative assessment of the impact of various operational and financial risk factors and can help top executives formulate and execute corporate strategy. In the course of the project you will be required to collect data, specify inputs and conduct various analyses to be described below. You must show all details of your work for all questions. Prior to starting your assignment read the HBR case study #9-206-046 entitled "Understanding Corporate-Valueat-Risk through a Comprehensive and Simple Example," by Marc Bertoneche and Franz Maurer. The case study outlines the approach taken by C-VaR to measure corporate financial risk exposures and is available on HBR class page. I have also posted the C-VaR Excel template to Blackboard based on this case study. You may work individually or form a group consisting of no more than 3 students. By Wednesday, March 27, email to me the names of your group members. You should submit your answers to the questions listed below along with your Excel models by Friday, May 10. Assignment: 1. Collect additional quarterly data on EUR/USD exchange rate, aluminum price per ton and 3- month interbank rate. Suggested data sources are listed below, but you can use other data sources such as Bloomberg if you prefer. Your quarterly data should start on 3/31/1999 and end on 12/31/2022. (10 pts) 2. Specify inputs. You can use the inputs of the case study/excel template or you can make your own assumptions. If you choose to specify your own inputs, two restrictions apply: (1) values of translated revenue from European sales, aluminum purchases, net transaction gains/losses on Euro account receivables and interest expenses must depend on bootstrapped growth rates, and (2) average pre-tax earnings must be positive. (5 pts) 3. Using C-VaR Excel template as your guide and assumptions you have made in part 2, calculate 95% C-VaR for this firm as of 12/31/2022 (your analysis date). Use 3,000 scenarios to forecast pre-tax earnings for year ending 12/31/2023. Assume that the benchmark is the average pre-tax earnings of the 3,000 scenarios. (15 pts) a. Create histogram showing the distribution of pre-tax earnings across all scenarios. (5 pts) b. How large the 95% C-VaR relative to your benchmark? Should this result concern corporate risk managers? (5 pts) 4. Let's suppose that quarterly historical growth rates in all three risk factors were decreased by 25% in absolute value. For example, if a growth rate was 40% in a given quarter it now becomes 30% or if a growth rate was -60% in a given quarter it now becomes -45%. Given this assumption re-calculate C-VaR. Use 3,000 scenarios to forecast pre-tax earnings for year ending 12/31/2023. Assume that the benchmark is the average pre-tax earnings of the 3,000 scenarios 3 and assume 95% C-VaR. Hint: Think carefully how you should adjust bootstrap to answer this question. (15 pts) 5. Assume that corporation decides to lock-in the exchange rate prevailing on 12/31/2022 through hedging, but not other risk factors. What is the C-VaR in this case? Use 3,000 scenarios to forecast pre-tax earnings for year ending 12/31/2023. Assume that the benchmark is the average pre-tax earnings of the 3,000 scenarios and assume 95% C-VaR. (15 pts) 6. Now let's assume that corporation locks-in the aluminum price prevailing on 12/31/2022 through hedging, but not other risk factors. What is the C-VaR now? Use 3,000 scenarios to forecast pretax earnings for year ending 12/31/2023. Assume that the benchmark is the average pre-tax earnings of the 3,000 scenarios and assume 95% C-VaR (15 pts) 7. Compare results in parts 3 through 6. What can you conclude about corporation's different hedging strategies? What hedging strategy would you recommend? Discuss. (15 pts).