1. discussion on overview. explain the background clearly.
2. Discussion of concepts. exlain each concept, state the formula.
Discuss the relevance of (i) purchasing power parity, (ii) the Fisher effect, expected inflation, and nominal interest rates, (iii) the interest rate parity theory and (iv) expectations for future exchange rates in this case.
Initial cash flows
Ongoing cash flows
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the whole project is going to talk about:
Discuss the relevance of (i) purchasing power parity, (ii) the Fisher effect, expected inflation, and nominal interest rates, (iii) the interest rate parity theory and (iv) expectations for future exchange rates in this case.
Calculate the initial and on-going after-tax MXN cash flows for the project
Compute the NPV for the project in EUR.
Translate the project’s MXN cash flows into EUR at the appropriate future spot exchange rates.
Explain how you determined the appropriate future exchange rates.
Calculate the NPV using an 8% discount rate in EUR.
Compute the NPV for the project in MXN.
Determine appropriate MXN discount rate.
Explain how you determined the appropriate MXN discount rate.
Translate the MXN NPV into EUR.
Compare the answers.
Recommend which approach should be used.
Please provide your group and names on the case analysis.
The analysis will be assessed on the following criteria: (1) quality of answers; (2) clarity of the PowerPoint presentation; (3) effective team collaboration; and (4) participation in the discussion of the case in the class on March 25.
The analysis will be weighted as follows:
Overview
Discussion of concepts
Initial cash flows
Ongoing cash flows
MXN NPV
MXN discount rate
EUR cash flows
EUR NPV
Recommendation
