Refer to International Corporate Finance in Practice 20. 2 on page 560 relating the French carmaker Renault’s entry into the Romanian automobile market. The year is 2004 and Romania is barely gaining associated status in the European Union. Full membership is a couple of years away. As the chief investment analyst for Renault, you are charged with the preparation of an in-depth analysis of the investment proposal and making a go/

no-go recommendation.

a. Describe briefly your methodological approach to strategic investment of this nature. Be specific.

b. Map out the architecture of the project. Be specific as to the currency denomination of each cash flow and other environmental variables likely to impact cash flows.

c. Outline the different phases of the financial analysis leading to the Renault board of directors’ eventual decision.

d. Which valuation metric is most appropriate for Renault to reach a decision?

Data from Practice 20. 2

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INTERNATIONAL CORPORATE FINANCE IN PRACTICE 20.2 RENAULT'S FORAY IN ROMANIA TO BUILD LOGANS As part of its strategy to become a major car producer in Eastern Europe, Re- nault invested 211 million to acquire a majority interest in Dacia-Romania's only car manufacturer-to build Logans. The investment called for Renault to start producing as many as 100,000 Logans annually (with 25 percent earmarked to neighboring East European countries) at an old Dacia factory located some 120 km northwest of Bucharest in the Arges. The Logan is a modern, robust, entry-level vehicle aimed at emerging markets and priced very moderately at 5,000. In addition to snaring a dominant role in Romania's 100,000 cars a year do- mestic market, Renault is also positioning itself to take advantage of Romania's relatively low wages and to use its Dacia plant as an export platform. "I can assure you, we're not going into Romania just for this initial assembly project," says Robert Genet, president of Renault International. The agreement marks an important step in Renault's aggressive eastern expansion. Renault had already invested nearly 500 million in Hungary for an engine plant and small-scale assembly operation from which Dacia would source its engines at the equiva- lent of 1,250 (but actually denominated in Hungarian florint-freely floating against the euro). Renault's main competitor in the Dacia deal was France's PSA Peugeot Citroen; earlier on, Italy's Fiat S.p.A. had also been interested.