Undertake the following analysis assuming we are at the end of 2007.
North American sales at the year-end stands at 35,398 vehicles.1 Since, sales volume is the main determinant of revenues and ultimately a key input in the decision to hedge, What is your expectation for sales volume for the next two years (i.e. 2008 and 2009)?
Assume that the average sale price of Porsche in North America is $100,000 and that the costs associated with manufacturing and shipping vehicles to North America is €62,000 per vehicle. Ultimately, Porsche managers are interested in Euro (€) denominated cash flows and this depends on the prevailing US$/Euro exchange rate as at 2008/9. Given this information
(i) What would happen if the company were to undertake a 100% hedge using forward contracts? Hint. Use your forecast of sales volumes to determine the amount to be hedged.