Lux Expo (B). Assume the same facts as in Problem 3. Also assume that the pound costs
Question:
Lux Expo (B). Assume the same facts as in Problem 3. Also assume that the pound costs will not change.
Suppose that the financial management believes that the sales volume will increase at 20% per annum for eight years if it keeps the same yuan sales price. At the end of 10 years, Lux Expo will not be able to export to China due to expected trade barriers. After the yuan is devalued to Yuan10.00/GBP, no further devaluations are expected. If Lux Expo raises the yuan price so as to maintain its GBP price, the volume will increase at only 5% per annum for eight years, starting from the lower initial base of 50,000 units (dollar costs will not change), and at the end of eight years Murray Exports will stop exporting to China. Murray Exports’ weighted average cost of capital is 15%. Under these conditions, what do you think Murray Exports’ pricing policy should be?
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