Final Take Home Exam
Order ID: 89JHGSJE83839 Style: APA/MLA/Harvard/Chicago Pages: 5-10 Instructions:
FIN 333
Final Take Home Exam (To be done individually)
Dr. V.Singh
Instructions:
Please read the attached case and answer the single question at the end. You are limited to one half of one page of text for your answer plus any calculations (excel based would be preferred) that you may use to support your answer. You may attach any such calculations separately in your email.
The due date for the submission is mid-night on Wednesday May 12.
Case: Euro Hypermarkets
Based in Berlin, with sales of over EUR 53.9 billion from more than 5200 stores Euro Hypermarkets (EH) is one of the larger European retailers. It is currently looking to grow by adding several stores in the Euro area and has been advised by its investment banks to issue a debt in the form of a public bond to raise EUR 750 million.
EHs investment bankers have advised the company to issue 10-year bonds to be priced at PAR. The four currencies and the terms of the bond issue under consideration are as follows:
Currency
Coupon Rate (%)
Euros
5.25
British Pounds
5.375
Swiss Francs
3.625
US Dollars
5.50
Euro Hypermarkets (EH)
EH has been very successful in expanding its offshore operations. Exhibit 1 provides a history of EHs store portfolio from 1992 to 2001.
EH was profitable in all major operating regions. In 2001 EH generated operating profits of EUR 2.8 billion on sales of EUR 69.5 billion. Of that profit 7% originated in Asia and South America, 26% in Europe outside of Germany and the remainder was generated in Germany. The regional sales breakdown was 7% from Asia, 12 % from South America and 32% from Europe outside Germany. The companys long-term objective was to increase sales at an annual rate of 5% and recurring net income by 5-10%.
EH Financing Policy
In each country EH operated primarily within the local economy when buying and selling products. Foreign currency exposure on imported goods was generally hedged via forward contracts.
In 2001 total EH borrowing were EUR 13.5 billion of which EUR 6.4 billion were in publicly traded bonds. EHs debt was denominated in many currencies. Exhibit 3 details the recent composition of EHs borrowings by currency. Foreign currency borrowings were generally hedged so that total debt requirements were currently 97% in Euros.
Current Market Opportunities
As EH management considered the bond denomination decision, it also considered the current inflation, interest rate and exchange rate environment. Over the past 3 years long tern bond yields had declined in all 4 currencies. The Swiss Francs interest rate had however consistently been the lowest rate. The decision also hinged on future movement of exchange rates. Over the past 5 years the Euro had depreciated against most major currencies. Should this trend continue paying down foreign currency denominated debt with Euro denominated cashflow would become increasingly expensive.
The bonds would be issued in the euro bond market therefore were subject to similar issuance costs, liquidity and specifications regardless of the currency denomination. Eurobonds uniformly followed an annual coupon convention. Exhibits 4,5 and 6 provide information on trends in inflation, government benchmark bond yields and exchange rates in the various currencies. Exhibits 7 and 8 provide information on current spot exchange rates and the 10 year yield curve across the 4 countries.
Please answer the following question:
Which bond would you advise EHs management to issue and why? Please provide all analysis that supports your recommendation.
RUBRIC
Excellent Quality
95-100%
Introduction 45-41 points
The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.
Literature Support
91-84 points
The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.
Methodology
58-53 points
Content is well-organized with headings for each slide and bulleted lists to group related material as needed. Use of font, color, graphics, effects, etc. to enhance readability and presentation content is excellent. Length requirements of 10 slides/pages or less is met.
Average Score
50-85%
40-38 points
More depth/detail for the background and significance is needed, or the research detail is not clear. No search history information is provided.
83-76 points
Review of relevant theoretical literature is evident, but there is little integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are included. Summary of information presented is included. Conclusion may not contain a biblical integration.
52-49 points
Content is somewhat organized, but no structure is apparent. The use of font, color, graphics, effects, etc. is occasionally detracting to the presentation content. Length requirements may not be met.
Poor Quality
0-45%
37-1 points
The background and/or significance are missing. No search history information is provided.
75-1 points
Review of relevant theoretical literature is evident, but there is no integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are not included in the summary of information presented. Conclusion does not contain a biblical integration.
48-1 points
There is no clear or logical organizational structure. No logical sequence is apparent. The use of font, color, graphics, effects etc. is often detracting to the presentation content. Length requirements may not be met
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Final Take Home Exam