Groupe Ariel S.A Case Solution
Question 3:
By converting the NPV (calculated in question 2) from Peso into Euros, it translates 2.4 million Peso into 99,646 Euros at an exchange rate of 15.99/Euro. Since question is specifically asking to convert NPV in Peso to Euros at the given exchange rate therefore the effect of exchange rate was not reflected in the cash flows before calculating NPV since same spot rate cannot be applied on all cash flows over the years.
Question 4:
The effect of inflation has had a negative impact on the NPV as it declined with an increasing inflation rate both in Mexico and France. Though inflation is assumed to be higher in Mexico and it has substantially declined NPV of the company, leading it to a negative value which proves that the project should not be accepted as inflation rises more than 4% in Mexico but it is also worth noting that the cash flows has been converted from Peso to Euro with an increasing exchange rate which has also worsened the value of NPV whereas NPV in France remained positive but it declined with an increasing inflation rate........
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