A German company has a subsidiary in Switzerland. The subsidiary produces a particular product in Switzerland and sells it in the Eurozone. At the beginning of 2015, the exchange rate between theeuro and the Swiss franc (Fr) is Fr1.20/. The expected cash flows (the baseline case) from theSwiss subsidiary for the next five years are presented in the table below.

Assume that the subsidiary keeps sales price and cost per unit in Swiss franc unchanged and the price elasticity of demand for the product in the Eurozone is 2. What is the PV of the expected operating cash flows from the Swiss subsidiary after the exchange rate changed?

Your answer: ___________________. (Keep two decimals.)

Assumptions Sales volume (units) Sales price per unit Direct cost per unit Swiss corporate tax rate Exchange rate (Fr/E) 2015 1,000,000 Fr. 12.80 Fr. 9.60 29.5% 1.2000 2016 1,000,000 Fr. 12.80 Fr. 9.60 29.5% 12000 2017 1,000,000 Fr. 12.80 Fr. 9.60 29.5% 1.2000 2018 1,000,000 Fr. 12.80 Fr. 9.60 29.5% 1.2000 2019 1,000,000 Fr. 12.80 Fr. 9.60 29.5% 1.2000 Income Statement Sales revenue 2019 Fr. 12,800,000 Fr. 12,800,000 Fr. 12,800,000 Fr. 12,800,000 Fr. 12,800,000 9,600,000 9,600,000 890,000 -600,000 Fr. 1,710,000 Fr. 1,710.000 Fr. 1,710,000 Fr. 1,710,000 Fr. 1.710,000 504,450 Fr. 1,205,550 Fr. 1,205.550 Fr. 1,205,550 Fr. 1,205,550 Fr. 1,205,550 2015 2016 2017 2018 Direct cost of goods sold Cash operating expenses (fixed) Depreciation -9,600,000 890,000 -600 9,600,000 890,000 600,000 -9,600,000 890,000 -600,000 -890,000 -600,000 Pretax profit Income tax expense 504,450 504,450 504,450 504,450 Net income erating Cash Flows Net income Add back depreciation Changes in net working capital Cash flow from operations Fr. 1,205,550 600,000 Fr. 1,205,550 600,000 Fr. 1,205,550 600,000 Fr. 1,205,550 600,000 Fr. 1.205,550 600,000 Fr. 1,805,550 Fr. 1,805.550 Fr. 1,805,550 Fr. 1,805,550 Fr. 1,805,550 Cash flow from operations, in euro 1,504,625 1,504,625 1,504,625 1,504,625 1,504,625 Present Value @ 15% 5,043,736 Assume that the subsidiary has no change in net working capital. Cash operating expenses and depreciation are given. Cost of capital remains constant. Assumptions Sales volume (units) Sales price per unit Direct cost per unit Swiss corporate tax rate Exchange rate (Fr/E) 2015 1,000,000 Fr. 12.80 Fr. 9.60 29.5% 1.2000 2016 1,000,000 Fr. 12.80 Fr. 9.60 29.5% 12000 2017 1,000,000 Fr. 12.80 Fr. 9.60 29.5% 1.2000 2018 1,000,000 Fr. 12.80 Fr. 9.60 29.5% 1.2000 2019 1,000,000 Fr. 12.80 Fr. 9.60 29.5% 1.2000 Income Statement Sales revenue 2019 Fr. 12,800,000 Fr. 12,800,000 Fr. 12,800,000 Fr. 12,800,000 Fr. 12,800,000 9,600,000 9,600,000 890,000 -600,000 Fr. 1,710,000 Fr. 1,710.000 Fr. 1,710,000 Fr. 1,710,000 Fr. 1.710,000 504,450 Fr. 1,205,550 Fr. 1,205.550 Fr. 1,205,550 Fr. 1,205,550 Fr. 1,205,550 2015 2016 2017 2018 Direct cost of goods sold Cash operating expenses (fixed) Depreciation -9,600,000 890,000 -600 9,600,000 890,000 600,000 -9,600,000 890,000 -600,000 -890,000 -600,000 Pretax profit Income tax expense 504,450 504,450 504,450 504,450 Net income erating Cash Flows Net income Add back depreciation Changes in net working capital Cash flow from operations Fr. 1,205,550 600,000 Fr. 1,205,550 600,000 Fr. 1,205,550 600,000 Fr. 1,205,550 600,000 Fr. 1.205,550 600,000 Fr. 1,805,550 Fr. 1,805.550 Fr. 1,805,550 Fr. 1,805,550 Fr. 1,805,550 Cash flow from operations, in euro 1,504,625 1,504,625 1,504,625 1,504,625 1,504,625 Present Value @ 15% 5,043,736 Assume that the subsidiary has no change in net working capital. Cash operating expenses and depreciation are given. Cost of capital remains constant