Essay Available:
Pages:
3 pages/β825 words
Sources:
Check Instructions
Style:
APA
Subject:
Accounting, Finance, SPSS
Type:
Case Study
Language:
English (U.S.)
Document:
MS Word
Date:
Total cost:
$ 16.97
Topic:
Porsche's Foreign Exchange Exposure
Case Study Instructions:
Read the "case" about Porsche, than answer "Porsche questions and pointers"
please address all questions and pointers.
Case Study Sample Content Preview:
Case Study- Porsche – Questions and Pointers
Name Course Instructor Date
1. Should Porsche hedge its Foreign Exchange exposure? Does it make sense from the perspective of shareholders? Explain Why or why not?
Porsche is hedging to reduce their exposure to exchange rate volatility, which affects earnings and the cash flows and shareholders want to protect against potential exchange arte losses/. The company can use futures contracts or the currency swaps as they help to set the target the exchange rate Porsche has operations in the domestic and international market, which exchange rate fluctuation for foreign currencies affects international demand for the company’s products The futures and currency swaps are useful as the change in value depends on the foreign currency exchange rates change. In the 2006/ 2007 financial year, Porsche’s foreign exchange hedging resulted in €250 million for the company’s bottom-line (Hedging at Porsche). Thus, being in a favorable foreign position will help reduce the risk of Porsche being exposed to foreign exchange losses. Hedging to reduce exposure to risks linked to foreign currency exchange rate changes and interest rates, but Porsche‘s shareholders also expect that the company assess risk and does not use hedging for speculative trading purpos
2.
a. Porsche does not hedge its currency exposure at all;
Expected
Low sales scenario
High sales scenario
Number of vehicles sold
32,750
22,925
42,575
Price
$90,000
$90,000
$90,000
Revenue
$2,947,500,000
$2,063,250,000
$3,831,750,000
Variable cost per unit in Euro €
60,000
60,000
60,000
Total variable cost in Euro €
1,965,000,000
1,375,500,000
2,554,500,000
Profit
40,102,040.82
28,071,428.57
52,132,653.06
Profit in € = Revenues in $ / Exchange Rate - Total Variable Cost in €
Exchange rate 1.47 $ per €
The exchange rate at the end of November 2007 was 1.47 $ per €If Porsche bought one-year put options on the U.S. dollar on November 30, 2007, it would have been at a strike of 1.45$ per €
Using the exchange rate 1.47 $ per €
* Expected Profit = (2,947,500,000/1.47) - 1,965,000,000= 40,102,040.82
* Low sales Profit = (2,063,250,000 /1.47) - 1,375,500,000= 28,071,428.57
* High sales Profit= (3,831,750,000 /1.47) - 2,554,500,000= 52,132,653.06
b. Porsche hedges by selling forward US $ equal to the amount of expected 2009 sales with a 2 year forward contract;
2009
Sales price
$90,000
Variable Cost
60,000
Spot rate
1....
Get the Whole Paper!
Not exactly what you need?
Do you need a custom essay? Order right now:
π Other Visitors are Viewing These APA Case Study Samples:
- Case Study on Capital Cost1 page/β275 words | APA | Accounting, Finance, SPSS | Case Study |
- Prepare A Memorandum Addressed To William And Randy2 pages/β550 words | No Sources | APA | Accounting, Finance, SPSS | Case Study |
- The Hershey Company CRS Report Critique4 pages/β1100 words | 4 Sources | APA | Accounting, Finance, SPSS | Case Study |
- ACBU 2223: Zimmerman Variance Case3 pages/β825 words | 1 Source | APA | Accounting, Finance, SPSS | Case Study |
- Eastman Kodak6 pages/β1650 words | 6 Sources | APA | Accounting, Finance, SPSS | Case Study |
- Cat and Joe's Pig Rig Case4 pages/β1100 words | No Sources | APA | Accounting, Finance, SPSS | Case Study |
- F17 MGAB01 The Role that Has Been Assigned to the Accountant and the Users of the Report5 pages/β1375 words | 4 Sources | APA | Accounting, Finance, SPSS | Case Study |