Albion Computers PLC, which manufactures and sells personalcomputers in the U.K. market. Albion Computers imports microprocessors fromIntel, which sells them for $512 per unit. At the current exchange rate of$1.60 per pound, each Intel microprocessor costs 320. Albion Computers hiresBritish workers and sources all the other inputs locally. Albion faces a 50percent income tax rate in the U.K. The exhibit below summarizes projectedoperations for Albion Computers, assuming that the exchange rate will remainunchanged at $1.60 per pound. The company expects to sell 50,000 units ofpersonal computers per year at a selling price of 1,000 per unit. The unitvariable cost is 650, which comprises 320 for the imported input and 330 forthe locally sourced inputs. Needless to say, the pound price of the importedinput will change as the exchange rate changes, which, in turn, can affect theselling price in the U.K. market. Each year, Albion incurs fixed overhead costsof 4 million for rents, property taxes, and the like, regardless of outputlevel. As the exhibit shows, the projected operating cash flow is 7,250,000per year, which is equivalent to $11,600,000 at the current exchange rate of$1.60. Benchmark Sales (50,000 units at 1,000/unit) 50,000,000 Variable costs(50,000 units at 650/unit) 32,500,000 Fixed overhead costs 4,000,000Depreciation allowances 1,000,000 Net profit before tax 12,500,000 Income tax(50%) 6,250,000 Profit after tax 6,250,000 Add back depreciation 1,000,000 Operatingcash flow in pounds 7,250,000 Operating cash flow in dollars $11,600,000 1.Now consider the possible effect of an appreciation of the pound on theprojected dollar operating cash flow of Albion Computers. Assume that the poundmay appreciate from $1.60 to $1.80 per pound. (a) Suppose Albion decides tomaintain its selling price of its personal computers in the U.S. market atUS$1,600 per unit. Compute the projected cash flow in pounds as well as indollars following the pound appreciation. (b) Assuming that the poundappreciation would affect CFs for 4 years, and assuming a discount rate of 15%,calculate the PV of the CFs over 4 years. Using the benchmark case forcomparison, calculate Albions Gain/Loss in operating CFs from the change inthe pound. 2. Consider Case 3 of Albion Computers PLC discussed in the chapter.Now, assume that the pound is expected to depreciate to $1.50 from the currentlevel of $1.60 per pound. This implies that the pound cost of the importedpart, i.e., Intels microprocessors, is 341 (=$512/$1.50). Other variables,such as the unit sales volume and the U.K. inflation rate, remain the same asin Case 3. In other words, we assume that both the selling price and the priceof locally sourced inputs increase at the rate of 8 percent, reflecting theunderlying inflation rate in the U.K. Also, because of facing an elastic demandfor its products, sales volume declines to 40,000 units per year after theprice increase. (a) Compute the projected annual cash flow in pounds as well asin dollars. (b) Assuming that the pound depreciation would affect CFs for 4years, and assuming a discount rate of 15%, compute the PV of the CFs over 4years. Using the benchmark case for comparison, calculate Albions projectedoperating gains/losses over the four-year horizon due to the pounddepreciation.