4 Part: A, B, C, & D

Rolls-Royce Turbine Engines. Rolls-Royce is struggling with its pricing strategy with a number of its major customers in Continental Europe, particularly Airbus. Since Rolls-Royce is a British company with most manufacturing of the Airbus engines in the United Kingdom, costs are predominantly denominated in British pounds. But in the period shown in the popup window, , 2007-2009, the pound steadily weakened against the euro. Rolls-Royce has traditionally denominated its sales contracts with Airbus in Airbus' home currency, the euro. After completing the table answer the following questions: a. Assuming each Rolls-Royce engine marketed to Airbus is initially priced at 22.81 million each, how has the price of that engine changed over the period shown when priced in euros at the current spot rate? b. Complete the table in the popup window, What is the cumulative percentage change in the price of the engine in euros for the two-year period? c. If the price elasticity of demand for Rolls-Royce turbine sales to Airbus is relatively inelastic, and the price of the engine in British pounds never changes over the period, what does this price change mean for Rolls-Royce's total sales revenue on sales to Airbus of this engine? d. Compare the prices and volumes for the first quarter of each of the three years shown in the table in part b above. Who has benefitted the most from the exchange rate changes? (***) a. Compute the sales prices per unit of engine in euros for the three-year period in the following table: (Round to two decimal places.) Date Price (millions of pounds, ) Spot rate (euro = 1.00 pound) 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 22.81 22.81 22.81 22.81 22.81 1.4936 1.4703 1.4661 1.4106 1.3177 34.07 2Q 2008 22.81 1.2624 Price (millions of euros, ) Date Price (millions of pounds, ) Spot rate (euro = 1.00 pound) Price (millions of ouros, ) 3Q 2008 22.81 1.2568 4Q 2008 1Q 2009 22.81 22.81 1.1923 1.1015 2Q 2009 22.81 1.1352 3Q 2009 22.81 1.1488 4Q 2009 22.81 1.1068 Date Price (millions of pounds, ) Spot rate (euro = = 1.00 pound) Price (millions of euros, ) Date Price (millions of pounds, ) Spot rate (euro = 1.00 pound) Price (millions of euros, ) 1Q 2007 22.81 1.4936 34.07 3Q 2008 22.81 1.2568 2Q 2007 22.81 1.4703 4Q 2008 22.81 1.1923 4Q 2007 22.81 22.81 1.4661 1.4106 1Q 2009 2Q 2009 22.81 22.81 1.1015 1.1352 3Q 2007 1Q 2008 22.81 1.3177 3Q 2009 22.81 1.1488 2Q 2008 22.81 1.2624 4Q 2009 22.81 1.1068 Date Price (in millions of pounds, ) Spot rate (/) Price (in millions of euros, ) Sales volume (engines) Total cost to Airbus (millions of ) Total revenue to RR (millions of ) 1Q 2007 22.81 1.4936 34.07 500 17,035 11,405 1Q 2008 22.81 1.3177 30.06 550 16,533 12,546 1Q 2009 22.81 1.1015 25.13 600 15,078 13,686 % Chg % % 20.00 % % % Rolls-Royce Turbine Engines. Rolls-Royce is struggling with its pricing strategy with a number of its major customers in Continental Europe, particularly Airbus. Since Rolls-Royce is a British company with most manufacturing of the Airbus engines in the United Kingdom, costs are predominantly denominated in British pounds. But in the period shown in the popup window, , 2007-2009, the pound steadily weakened against the euro. Rolls-Royce has traditionally denominated its sales contracts with Airbus in Airbus' home currency, the euro. After completing the table answer the following questions: a. Assuming each Rolls-Royce engine marketed to Airbus is initially priced at 22.81 million each, how has the price of that engine changed over the period shown when priced in euros at the current spot rate? b. Complete the table in the popup window, What is the cumulative percentage change in the price of the engine in euros for the two-year period? c. If the price elasticity of demand for Rolls-Royce turbine sales to Airbus is relatively inelastic, and the price of the engine in British pounds never changes over the period, what does this price change mean for Rolls-Royce's total sales revenue on sales to Airbus of this engine? d. Compare the prices and volumes for the first quarter of each of the three years shown in the table in part b above. Who has benefitted the most from the exchange rate changes? (***) a. Compute the sales prices per unit of engine in euros for the three-year period in the following table: (Round to two decimal places.) Date Price (millions of pounds, ) Spot rate (euro = 1.00 pound) 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 22.81 22.81 22.81 22.81 22.81 1.4936 1.4703 1.4661 1.4106 1.3177 34.07 2Q 2008 22.81 1.2624 Price (millions of euros, ) Date Price (millions of pounds, ) Spot rate (euro = 1.00 pound) Price (millions of ouros, ) 3Q 2008 22.81 1.2568 4Q 2008 1Q 2009 22.81 22.81 1.1923 1.1015 2Q 2009 22.81 1.1352 3Q 2009 22.81 1.1488 4Q 2009 22.81 1.1068 Date Price (millions of pounds, ) Spot rate (euro = = 1.00 pound) Price (millions of euros, ) Date Price (millions of pounds, ) Spot rate (euro = 1.00 pound) Price (millions of euros, ) 1Q 2007 22.81 1.4936 34.07 3Q 2008 22.81 1.2568 2Q 2007 22.81 1.4703 4Q 2008 22.81 1.1923 4Q 2007 22.81 22.81 1.4661 1.4106 1Q 2009 2Q 2009 22.81 22.81 1.1015 1.1352 3Q 2007 1Q 2008 22.81 1.3177 3Q 2009 22.81 1.1488 2Q 2008 22.81 1.2624 4Q 2009 22.81 1.1068 Date Price (in millions of pounds, ) Spot rate (/) Price (in millions of euros, ) Sales volume (engines) Total cost to Airbus (millions of ) Total revenue to RR (millions of ) 1Q 2007 22.81 1.4936 34.07 500 17,035 11,405 1Q 2008 22.81 1.3177 30.06 550 16,533 12,546 1Q 2009 22.81 1.1015 25.13 600 15,078 13,686 % Chg % % 20.00 % % %