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%.

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