A U.K. company is currently selling vases in the U.S. with the below information:

Sales	Price	Exchange Rate
200,000	$5	$1.25/

Our company predicts that the pound will appreciate soon by 4%, after which the exchange rate will remain unchanged in perpetuity. Production is based in the U.S., and variable costs are $2 per unit, and there are no fixed costs or depreciation/amortization. The U.K. corporate tax rate is 25%. At the end of each year, the net working capital is expected to be equal to one-fourth variable costs. The company is choosing to keep its selling price constant, which will maintain their sales volume; and they use a WACC of 10%.

a. What is the impact of the depreciation of the dollar on the value of the company? Show your calculations.

b. Describe how the company could fully hedge their exposure in the forward market. (Buy or sell forward, what currency, how much)

c. Should they leave the U.S. market if the prediction for the pound was appreciation of 20% instead of 4%? Show your calculations.