Teaching Note | HBS Case Collection | September 2015
Unidentified Industries: Australia 2014
Benjamin C. Esty and William E. Fruhan, Jr.
Keywords: Accounting; Finance; Financial Management; Australia;
Citation:Esty, Benjamin C., and William E. Fruhan, Jr. "Unidentified Industries: Australia 2014." Harvard Business School Teaching Note 216-018, September 2015. View Details
Carrefour S.A. Case Study
763 WordsNov 22nd, 20124 Pages
International Borrowing at Carrefour S.A.
Briefly discuss the background of Carrefour SA and its financing practices. What are the borrowing alternatives?
Carrefour S.A. is operating as a chain of hypermarkets, combining a supermarket, drugstore, discount store and gas station. Carrefour is originating from France, however, during 40 years it has expanded its operations to ten other European countries, six South and North American countries and nine Asian countries.
The largest sales and profits of the company come from operations in France. But only in 2001 sales coming from France were less than from foreign operations.
Carrefour management had generally financed company growth through securities denominated in the currency of…show more content…
IRR was calculated using MS Excel formula. In order to check the correctness of the calculation, IRR check was performed (CF discounted and added to get initial financing needed. Please, see the detailed calculation in the MS excel spreadsheet. The calculation resulted in the following figures for IRR: British pound | 5,32% | Swiss franc | 5,59% | U.S. Dollar | 5,50% | CF in EUR | 5,25% | Suggest the best borrowing alternative for Carrefour. In which currency (EUR, CHF, GBP, USD) should the company borrow?
It is suggested that Carrefour borrows the required EUR750 million in EUR as according to the calculations provided the lowest cost of borrowing is in EUR and is equal to the internal rate of return (IRR) in that currency = 5.25%. The cost Careefour would pay if borrowed in EUR would be the lowest in comparison with the cost paid in British Pound, Swiss Franc or U.S. Dollar. The company should always seek for the cheapest available source of finance. The suggestion of the investment banks Morgan Stanley and UBS-Warburg to take advantage of a borrowing opportunity in GBP is not reasonable, as the cost of borrowing in GBP would be 5.32% which is more expensive than issuing securities denominated in EUR. What other factors should Carrefour management consider when