Jaguar

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Jaguar plc, 1984: Suggested Answers

In order to attempt to answer the quantitative questions in this case, it is almost essential

to use spreadsheet software. The cash flow projections for Jaguar under the "base case"

scenario should be entered in the spreadsheet using the stated assumptions for growth

rates, depreciation rates, inflation rates, etc. so that these assumptions can be changed

easily, and new profit and valuation figures can be calculated easily. You should recognize

that the "base case" is itself built upon a set of assumptions that attempt to formalize the

economic situation facing Jaguar. Some figures and relationships had to be assumed in

order to generate a numerical result. This is fairly realistic.

Note that the value of the firm is £515,410,000 (rather than £502,055,000) when the

terminal value is adjusted by (1+g) to correct the spreadsheet error.

1.

Consider Jaguar's exchange rate exposures.

a.

To what currencies is Jaguar exposed?

Jaguar is exposed to the US$ as it has sales in the United States that generate US$. Jaguar is also

exposed to the DM, as it is in competition with Mercedes-Benz and Porsche. Some might answer

that there is also ¥ exposure, as Jaguar may compete with higher priced Japanese cars (e.g.

Lexus, Infinity, Acura) introduced in the mid-1980s, although there is no mention of this in the case.

b.

What are the sources of these exposures?

The US$ exposure comes by virtue of Jaguar's export sales to the United States that are priced in

US$. Since Jaguar production is in the United Kingdom, there are no major US$ expenditures. It

could be argued that some percentage of production costs are for materials (e.g. steel, rubber) and

energy costs that are US$ based. But basically, Jaguar has a net asset position in US$ by virtue of

its US sales and US$ cash flows.

The DM exposure comes by virtue of competition from two German luxury...