Groupe Ariel Analysis
Notes:
Afte Afterr-ta tax x Salv Salvag age e Valu Value e Mark Market et Salv Salvag age e Valu Value e Tax Tax Rate Rate Gain Gain on Sale Sale
Depr Deprec ecia iati tion on Tax Tax Shie Shield ld Tax Tax Rate Rate Depr Deprec ecia iati tion on
Fre Free Ca Cash Flo Flow w Operati rating ng Cash Flo Flow w NWC CAPX After fter-t -tax ax Salva lvage Value lue where: ΔNWC = year-over-year year-over-year change in net working capital (where net working capital is current assets minus current liabi lities); Oper Operat atin ing g Cash Cash Flow Flow
EBIT EBIT 1 Tax Tax Rate Rate Depr Deprec ecia iati tion on EBITDA 1 Tax Ra Rate Deprecation Tax Rate .
.
For the Groupe Ariel case, “EBITDA” in the operating cash flow formula formula above corresponds to pre-tax cost savings.
Interest rate parity a la the Fischer effect: effect:
Foreign Discount Rate
Domest stic ic Disc Discou ount nt Rate Rate 1 Fore Foreig ign n Infl Inflat atio ion n 1 Dome
1 1 Domes Domestic tic Inflat Inflation ion Domestic Discount Rate Foreign Inflation Domestic Inflation
France In flat ion Mexico In flat ion Cost of Capital , €
3.0% 7.0% 8.0%
A. Compute Project Cash Fl ows in Pesos Pesos Year 0
Expen ditu re Aft er-tax s alvage valu e, o ld equ ipment Increment al co s t s aving s , after tax Los e depreciat ion t ax s hields , old eq uip men t Gain d epreciatio n t ax s h ields , new eq uip men t To tal pes o cas h flows
1
2
3
4
5
6
7
8
9
10
(3,500,000) 201,250
472,829 (29,167) 122,500 (3,298,750) 566,162
548,606 637,241 740,972 (29,167) (29,167) 122,500 122,500 122,500 641,939 730,574 863,472
792,840
848,339
907,722
971,263
1,039,251
1,111,999
122,500 915,340
122,500 970,839
122,500 1,030,222
122,500 1,093,763
122,500 1,161,751
122,500 1,234,499
B. Appr oach #1: Discount Peso Peso Cash Fl ows at Peso Peso Discount Rate Year 0
To tal pes o cas h flows Co s t of cap ital, pes os Dis co un t fact or, pes os Pres ent v alue, pes os Net present v alue, pesos
1
2
3
4
5
6
7
(3,298,750) 566,162 641,939 730,574 863,472 915,340 970,839 1,030,222 0.1219 0.1219 0.1219 0.1219 0.1219 0.1219 0.1219 0.1219 1.000 0.891 0.794 0.708 0.631 0.563 0.501 0.447 (3,298,750) 504,627 509,980 517,313 544,963 514,909 486,772 460,404 1,478,9 1,478,999 99
8
9
10
1,093,763 1,161,751 1,234,499 0.1219 0.1219 0.1219 0.398 0.355 0.316 435,673 412,459 390,650