Question
Assume the companys sales of trapdoors and cash flows in China is projected as follows for the coming year. The spot rate is $0.13/. Units
Assume the companys sales of trapdoors and cash flows in China is projected as follows for the coming year. The spot rate is $0.13/.
Units | Price | Total | |
Sales | 10000 | 1,750.00 | 17,500,000.00 |
Variable costs - Imported from US at $50 | 10000 | 384.62 | 3,846,153.85 |
Variable costs - Local component | 10000 | 500.00 | 5,000,000.00 |
Fixed Costs | 350,000.00 | ||
Depreciation | 400,000.00 | ||
Profits before taxes | 7,903,846.15 | ||
Taxes 35%% | 2,766,346.15 | ||
Net profit after taxes | 5,137,500.00 | ||
Add back depreciation | 400,000.00 | ||
Cash Flows | 5,537,500.00 | ||
Net profit in US dollars | Spot rate | $0.13 | $719,875.00 |
Assume the yuan is expected to depreciate to $0.10 because of high inflation locally. The price of the trapdoor and the local component of variable costs is expected to increase by 8% per unit. Export sales is expected to decrease to 9,000 units because of the increase in prices. The fixed cost is expected to remain the same. Assuming the new exchange rate is expected to be permanent, what is the economic exposure? Use five years to find the Present value of the change in cash flows at a cost of capital of 16%.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started