布雷利公司金融基础篇和进阶篇12e 英文 27_Exacta_SA[3页]

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EXACTA, S. A. Minicase solution, Chapter 27 Principles of Corporate Finance, 12th edition R. A. Brealey, S. C. Myers and F. Allen

Exacta now has export revenues in dollars of $320 million. Assuming an exchange rate of, say, 1.33 $/€ (.75 €/$), this revenue is worth €240 million. Suppose the dollar falls suddenly to 1.45 $/€ (.69 €/$). What is the loss to Exacta?

First, the value in euros of Exacta’s dollar accounts receivable (payments due on prior export sales) drops immediately. If accounts receivable equal two month’s sales, the loss is 320  2/12  (.75 – .69) = €3.2 million. This exposure would be easy to hedge by a forward sale of dollars for euros.

Second, the value in euros of Exacta’s future export revenues falls, because it cannot immediately raise its prices in dollars to compensate for the fall in the dollar. The annual exposure if the dollar falls to .69$/€ is therefore 320  (.75 – .69) = €19.2 million euros. Exacta’s conservative CEO might decide to hedge all of next year's export revenues.

How will construction of the new U. S. plant affect these exposures? Two-thirds of the plant’s operating expenses will be in dollars, which provides a natural hedge. Table 1 shows how Exacta is affected by a drop in the dollar from .75 to .69 €/$. Look first at the left-hand column (for .75 €/$). We start with dollar revenues from the new plant ($420 million). A profit of $52 million from the plant implies total costs of $368 million. Two-thirds of these costs are in dollars, so we subtract $245.3 million, leaving a net dollar cash flow of $174.7 million.1 This converts to €131 million. After subtracting Exacta’s cost in euros,2 it is left with €39 million.

Now look at column (A) in the table. At .69 €/$, the net dollar cash flow now converts to only €120.5 million, leaving Exacta with €28.5 million after its costs in euros

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For simplicity we are forgetting about U. S. or French taxes.

One third of costs are incurred in euros. The costs are $368/3 = $122.7 in dollars or 122.7×.75 = €92 in euros.

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of

McGraw-Hill Education.

are paid. (We assume that Exacta’s costs in euros are not affected by the dollar’s decline.) So its loss from the fall in the dollar is €39 – 28.5 = €10.5 million.3

Column (B) shows the annual proceeds to Exacta if all costs were in euros rather than dollars. (This would be a pure export business with $420 million in annual sales.) In this case Exacta gets only €13.8 million. Column (C) shows the result if all costs of the new U. S. plant are in dollars. In this case Exacta gets €35.9 million, its U.S. profits of $52 million times the exchange rate of .69 €/$. In this case Exacta would only have to worry about hedging the profits of the U. S. plant, not its sales revenues.

Now let’s go back to the base case in the left-hand column of Table 1. If Exacta decides to hedge the annual dollar cash flow produced by its U. S. plant, it will sell $174.7 million forward for euros. It may also decide to hedge any dollar accounts receivable accumulated by the U. S. plant.

Of course, selling forward one year’s net dollar revenues is somewhat arbitrary (why not 15 or 18 months?) and leaves Exacta exposed to subsequent changes in the exchange rate. Exacta might think about hedging the present value of the dollar cash flows generated by the plant,4 but calculating the sensitivity of this present value to changes in the euro-dollar exchange rate would not be easy. M. Pangloss would have to try to understand the long-run effects of an exchange-rate shift on the plant’s cash flow in dollars and euros. There is no reason to think that financing all of the plant’s construction cost with dollar borrowing would be the correct hedge for any exposure.

Once Exacta decides how much to hedge its dollar exposures, it can do so either by selling dollars forward or by borrowing dollars and immediately converting the proceeds of the borrowing into euros. The forward market is more liquid for short-term transactions, but for longer-term hedges it may be easier to borrow dollars and convert to euros.

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It doesn’t matter whether Exacta bills its U. S. plant for these costs in dollars or euros.

There is no point in hedging the investment in the plant, because that investment will be sunk by the time the plant is operating.

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of

McGraw-Hill Education.

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