This is a team project. Given the actual 10K financial statement for Amoco, each team will project Amoco’s cash flows in three consolidated regions: North America, Europe, and Other Regions, then value Amoco, and then calculate Amoco’s exchange rate exposure with respect to the DM and JY. Each team will present their findings to Amoco’s "board of directors".

Attached is the Income Statement, Balance Sheet, and Statement of Cash Flows from Amoco’s 10(k) filing with the SEC. For the base case, each team is asked to:

1. Calculate Amoco’s Free Cash Flows for North America in U.S.$, for Europe in DM, and for Other Regions in JY, for each of the years covered by the historical financial statements using the template we developed for Abbott Laboratories.

 

2. Using the historical exchange rate and inflation rate data given below, forecast the future $/DM and $/JY exchange rates for a 10 year explicit forecast period.

 

3. Using the Amoco regional revenue given below, project Amoco’s Free Cash Flows for North America in U.S.$, for Europe in DM, and for Other Regions in JY for a 10-year explicit forecast period.

 

4. Using the appropriate long-run growth rate for each region and the appropriate WACC for each currency, calculate the continuation value of Amoco’s Free Cash Flows for North America in U.S.$, for Europe in DM, and for Other Regions in JY assuming that Amoco is an ongoing concern.

 

5. Translate the Free Cash Flow for Europe (including the European continuation value) from DM into $ using your forecasted future $/DM exchange rate. Translate the Free Cash Flow for Other Regions (including the Other Regions continuation value) from JY into $ using your forecasted future $/JY exchange rate.

 

6. Assuming a US$ WACC of 11%, calculate the Intrinsic Value of Amoco as a whole. Assuming a long-term equity percentage of 90% and corresponding debt percentage of 10%, calculate the Intrinsic Value of Amoco’s equity. Using the number of shares actually issued in 1995, calculate the Intrinsic Value of Amoco’s equity per share.

7. Assume an alternative exchange rate scenario in which there is a permanent 1% appreciate shock in the $/DM exchange rate that carries forward to all future years. Calculate the change in the Present Value of Amoco and Amoco’s DM elasticity of value.

 

8. Resetting the $/DM exchange rate to the base case forecast values, assume an alternative exchange rate scenario in which there is a permanent 1% appreciate shock in the $/JY exchange rate that carries forward to all future years. Calculate the change in the Present Value of Amoco and Amoco’s JY elasticity of value.

The teams whose members did not present Project 2 will present Project 4. In class on Tuesday, April 29^th, the presenting teams will summarize their findings in a brief report to Amoco’s Board of Directors. Each team will have twelve minutes to present their results, there will two minutes for questions, and one minute for transition between teams. These time limits will be strictly observed in order to be fair to everyone. A computer projector with Microsoft PowerPoint and Lotus FreeLance will be available. All teams are required to use one of these two presentation software packages. With presentation software, it is typical for one team member to operate the computer presentation while other members to talk. Professors Holden, Mysker, and Wedig will evaluate both the quality of the presentation (see presentation tips below) and the substance of the presentation.

A written report is also due in class on Tuesday, April 29^th. The format is a five pages, double-spaced body and no more than ten pages of appendices, including all graphs, spreadsheets, and presentation print outs. The body of the paper should tell the complete story. It should be written as if we were very busy bosses, who probably would not look at the appendices at all.

The project is graded as follows:

Confidential peer evaluations of individual contributions to the team project will made. Individuals who have contributed significantly more or significantly less than the group average will be rewarded or penalized accordingly. The purpose of these peer evaluations is to provide direct incentives for individual contributions to the team project.

Here are some general suggestions for a quality presentation that would apply to a broad range of presentations:

1. Big Picture. Highlight your key assumptions and your key results ("the bottom line"). Skip the "intermediate calculations" and avoid getting bogged down in the details. Focus on the key actions to take or key decisions to be made and give your recommendations.

 

2. Connect. Reach your audience by:

• making eye contact
• speaking clearly and loud enough for everyone to hear
• conveying enthusiasm for your presentation
• not turning your back to the audience to read off the screen
• not "reading" notes to the audience.

1. Opening and Closing. Provide motivation for your subject at the opening and summarize your results and recommendations at the closing.

 

2. Awareness. Avoid gender biases and reflect on your presentation to make sure that it will be well-received by both sexes.

 

3. Presentation Mechanics. Help your audience by:

• making slides large (readable from the back), rather than small type, jammed with numbers
• use short bullet points to convey ideas, rather than long, wordy sentences
• consider using graphs (= 1,000 words)

1. Backup. Always have backup transparency slides in case of computer hardware / software problems.

Here are some general suggestions for report exposition that would apply to a broad range of reports:

1. Layering. Provide an executive summary, then the main analysis, then more details of analysis.

• Create an executive summary with your major results on the first page. Provide the big picture / overview. A good approach is to use bullets for your major points and a summary table with the results of the base case and the alternative cases.
• Do the main analysis on the next four pages.
• Put more details in the appendices.

1. Summarize. Highlight your key assumptions and your key results ("the bottom line"). Skip the "intermediate calculations." Focus on the key actions to take or key decisions to be made and give your recommendations.

 

2. Motivate. Justify your key assumptions and general modeling approach.

• Why are these "reasonable" assumptions?
• Why is this a sensible way to do the calculations?

Team ______________

Overall team score ____________________