2. Recalculate the income statement shown in case Exhibit 1 using the post-Brexit exchange rate of 1.00 = 1.16, assuming that the U.K. subsidiary increases its price to U.K. buyers to 235 per unit. Assume that fixed costs remain fixed and variable costs vary proportionally to volume or quantity sold. Assume that U.K. purchasers' consumer behavior is somewhat elastic and that market research suggests their elasticity = 1.1. Using the simple price elasticity formula (see p. 3), calculate profit in both pounds and euros. Show all your work. (4 points in total) Fixed costs are business expenses that are not dependent on the level of goods or services produced by the business. Profit = Sales - Costs EXHIBIT 1: PRE-BREXIT INCOME STATEMENT (ANNUALIZED), ASSUMING 1.00 = 1.36 Per Unit 200 Quantity (Units) 40,000 8,000,000 . 200,000 2,647,059 90 40,000 3,600,000 Sales in U.K. U.K. Costs Contract Labour (variable cost) Import of Coffee Machines (invoiced at 90 each) Marketing and Distribution Costs (assumed to be fixed costs) Other Fixed Costs: Overheads, Interest, Depreciation Rent, Salaries, elo . 400,000 . 500,000 Profit (U.K. Subsidiary) 4,252.941 Or 5,784,000 Source Company documents Per Unit Quantity (3) Pound () Euros (6) GBP / EUR = 1.16 Sales (in GBP) Contract Labor (Variable Cost) (In GBP) Import of Coffee Machines (90 per unit) Marketing (Fixed Cost) Other Fixed cost Profit (Sales - Costs) 90