Discuss how Jaguar could manage this exposure using forward contracts.(5?) What type of positions would they take and for how long?

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Please just answer ***QUESTION 4*** 

 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”) 

Valuation framework

Projected
1983 1984
1 Dollar/sterling 1.350
United States
2 Growth, units (%) 12.0%
3 Volume, units 15260 17091
4 Inflation (%) 3.0%
5 US$ price/unit 25631
6 sales, dollars 438065
7 sales, sterling 324492
Rest of the world
8 Growth, units (%) 12.0%
9 Volume, units 13207 14792
10 Inflation (%) 5.0%
11 price/unit , sterling 17284
12 sales, sterling 255662
13 var. cost of sales/unit 13521
14 NWC 30000
15 discount rate 18.0%
Total sales, units 31883
16 Total revenues 580154
17 Var. cost sales 431091
18 Depreciation 10000
19 R&D 18000
20 Distribution 13300 13965
21 Administration 22000 23100
22 Total Costs 496156
23 EBIT 83999
24 Tax 29400
25 EBIAT 54599
26 Depreciation 10000
27 Operating cash flow 64599
28 Increase NWC 30000
29 Capital Expenditure 11500
30 FCF 23099
31 Terminal value
discount factor 1.00
32 PV, FCF 23099
33 Value of firm (sterling)
&A
Page &P

EXHIBITS

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EXHIBIT 1 Balance Sheets (in millions of pounds)
— December 31, — March 31,
1981 1982 1983 1984
Fixed Assets: – – – –
Tangible Assets £ 55.7 87.3 112.0 118.6
Investments in related companies — — 0.4 0.4
TOTAL FIXED ASSETS 55.7 87.3 112.4 119.0
Current Assets:
Stocks 56.3 68.8 62.7 76.5
Debtors 26.3 29.6 33.8 42.5
Cash & short-term deposits 1.3 6.9 29.5 11.5
TOTAL 83.9 105.3 126.0 130.5
Creditors: Amount falling due
within one year 51.3 81.1 128.8 127.5
Net Current Assets (Liabilities) 32.6 24.2 (2.8) 3.0
[PGDN] FOR MORE OF EXHIBIT 1…
Total Assets Less Current
Liabilities 88.3 111.5 109.6 122.0
Creditors: Amounts falling due
in more than one year (a) 1.2 17.6 43.9 58.0
NET 87.1 93.9 65.7 64.0
Capital and Reserves:
Called up share capital 45.0
Other Reserves 10.3 2.8
Profit and loss account 55.4 16.2
BL Group funding balance (b) 87.1 93.9
NET £ 87.1 93.9 65.7 64.0
(a) These obligations consisted primarily of capitalized leasing
obligations and warranty expense accruals.
(b) The BL Group funding balance was made up of certain loans from
BL Group which represented the capital and reserves of the Jaguar
business before the Jaguar Group acquired that business with effect
from January 1, 1983. [PGDN] FOR EXHIBIT 2…
EXHIBIT 2 Income Statements (in millions of Pounds) Quarter
ended
— Years ended December 31, — March 31,
1980 1981 1982 1983 1984
Turnover – – – – –
Continuing activities 166.4 195.2 305.6 472.6 143.3
Discontin. activities 83.6 48.3 4.3 — —
TOTAL 250.0 243.5 309.9 472.6 143.3
Cost of sales (a) (273.7) (245.6) (258.4) (369.7) (108.8)
GROSS PROFIT/(LOSS) (23.7) (2.1) 51.5 102.9 34.5
Distribution costs (7.3) (7.8) (13.8) (13.3) (4.4)
Administrative expenses (8.1) (11.2) (14.8) (22.0) (6.2)
Research and dvpt. cost (5.2) (9.8) (12.8) (16.5) (5.7)
OPERATING PROFIT/(LOSS) (44.3) (30.9) 10.1 51.1 18.2
Interest (3.0) (0.8) (0.5) (1.1) (0.2)
PROFIT/(LOSS) ON ORDINARY
ACTIVITIES BEF. TAX. (47.3) (31.7) 9.6 50.0 18.0
Tax. on ord. activities 1.3 — (0.1) (0.5) (0.5)
PROFIT/(LOSS ON ORDINARY
ACTIVITIES AFT. TAX. (46.0) (31.7) 9.5 49.5 17.5
Extraordinary items (6.2) (4.6) (3.0) — (14.2)
PROFIT/(LOSS) FOR THE
FINANCIAL PERIOD (52.2) (36.3) 6.5 49.5 3.3
Rates of exchange – Realized profits on exchange, together with
losses on exchange, whether realized or unrealized, which arise on
settlement of overseas liabilities are included in trading results.
Profit and loss account items of foreign subsidiaries are translated
into sterling at the average rate of exchange for each monthly
accounting period. Assets and liabilities, including outstanding
forward exchange contracts, are translated into sterling at the
rates of exchange ruling at the end of the financial period.
(a) Includes depreciation charges of £5.6 million in 1980, £7.3
million in 1981, £7.2 million in 1982, £8.6 million in 1983 and £2.5
million for the first quarter of 1984. [PGDN] FOR EXHIBIT 3…
EXHIBIT 3 Jaguar Sales by Models and Markets; December 31
(in number of vehicles)
1980 1981 1982 1983
Model Range: – – – –
Series III saloons 13851 12,666 17,733 23,413
XJ-S sports cars 1526 1,108 3,131 4,886
Limousines 92 159 143 168
TOTAL JAGUAR 15,469 13,933 21,007 28,467
MORE—>
1980 1981 1982 1983
Geographical Area: – – – –
United States 2,518 16% 5,154 37% 9,971 47% 15,260 54%
United Kingdom 6,135 40% 5,196 37% 6,415 31% 7,236 25%
West Germany 1,612