Carrefour S.A. Harvard Case Solution & Analysis

Forward Exchange Rate:

The details regarding the forward rates are presented in the excel file attached as well as an exhibit at the end of this document. The forward rates are computed using the interest rate parity theory in which the forward rates are computed using the interest rate of two countries. Furthermore, the forward rates are also compounded for the ten years.

Cost of servicing the debt:

The total cost of servicing the debt in Euro if the debt is raised in Swiss Franc,it would be 447,697,369. If the bonds are issued in Euro, the total cost of servicing the debt would be 393,750,000.  On the other hand, the total cost of debt service if the bonds are issued in USD would be 448,272,005 and lastly the cost of debt service would be approximately 348,501,556.

It can be said that the cheapest and effective currency in which Carrefour should have to issue debt is British Pound, the overall cost of raising the finance would be minimal. The cost of issuing the bond is substantially lower in British Pound as compared to the other currencies especially with Swiss Franc and USD.

Carrefour S.A. Harvard Case Solution & Analysis

IRR:

If the bonds are issued in Swiss Franc, the IRR would be 16%, the IRR would be 90% if the debt is issued in Euros. On the other hand, the IRR would be approximately 67% if the bonds are issued in USD and if the bonds are issued in British Pounds the IRR would be highest about 115%. Again by looking at the IRR, it is recommended that the Carrefour should have to issue the bonds in British Pound.

Exhibits:

Forward rate
Year Euro British Pound Swiss Franc USD
1              1.0000              1.5816              0.7043              1.0341
2              1.0000              1.5694              0.7188              1.0447
3              1.0000              1.5575              0.7324              1.0515
4              1.0000              1.5464              0.7456              1.0558
5              1.0000              1.5367              0.7586              1.0580
6              1.0000              1.5285              0.7714              1.0587
7              1.0000              1.5216              0.7841              1.0582
8              1.0000              1.5158              0.7967              1.0566
9              1.0000              1.5109              0.8092              1.0542
10              1.0000              1.5068              0.8216              1.0509

 

 

 

 

 

 

 

 

 

 

Issuance of bonds in Swiss Franc
Year Principle Interest Principle (Euro) Interest (Euro)
0       1,090,116,279       750,000,000
1                        -         39,516,715                      -         27,829,700
2                        -         39,516,715                      -         28,405,049
3                        -         39,516,715                      -         28,943,669
4                        -         39,516,715                      -         29,464,498
5                        -         39,516,715                      -         29,976,799
6                        -         39,516,715                      -         30,483,399
7                        -         39,516,715                      -         30,985,433
8                        -         39,516,715                      -         31,483,817
9                        -         39,516,715                      -         31,977,812
10                        -         39,516,715                      -         32,468,358
Total       1,090,116,279       395,167,151  895,678,833.39       302,018,535
Loan amount at forward rate          895,678,833      
Interest payments          302,018,535      
Loan amount at spot rate          750,000,000      
Total Bond Payment          447,697,369      

 

 

 

 

 

Issuance of bonds in Euro
Year Principle Interest
0     750,000,000
1                    -    39,375,000
2                    -    39,375,000
3                    -    39,375,000
4                    -    39,375,000
5                    -    39,375,000
6                    -    39,375,000
7                    -    39,375,000
8                    -    39,375,000
9                    -    39,375,000
10                    -    39,375,000
Total     750,000,000  393,750,000
Loan amount at forward rate     750,000,000  
Interest payments     393,750,000  
Loan amount at spot rate     750,000,000  
Total Bond Payment     393,750,000  

 

 

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

 

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