Using information in the case, your notes from class, and your experience, write the report from the perspective of Arnaud Martin who has been asked to critically evaluate and make a recommendation on Groupe Ariel’s investment decision. Your report should address the following issues
Undertake the following valuation exercise for Groupe Ariel’s Mexican investment from the perspective of the analyst, Arnaud Martin. Given the information provided in the case (i) What are the incremental free cash flows for the foreign investment?
(ii) How should Arnaud Martin estimate the cost of capital for this investment? To answer this question, consider whether the discount rate used will be different if this were an investment back in France.
(iii) What would Martin’s advice to management be about the purchase of new equipment? Would Martin’s recommendation be different if he were to first estimate the cash flows of the Mexican project in Euro terms? For the purposes of
(a) use the future inflation rates provided in the case. For Mexico (France) it is expected to be 7% (3%).