Besides sales in China, Tesla Shanghai Super Factory also exports cars to Australia. For the rest of the question, assume that the additional sale to Australia is 1,000 cars and the price is AUD 60,000. The shipment cost per exported car is CNY5,000. The sales revenue in Australia will be translated to the U.S. directly at the spot exchange rate. Now the exchange rate is AUD1.5/USD and CNY 6.5/USD. (Note: all productions are in China, but Chinese corporate tax is exempt for these exports. Please do NOT consider U.S. tax or Australian tax). c. What are the operating cash flows in dollars now? (2 marks) d. If the spot rate reduces to CNY6.0/USD, Tesla would like to pass all benefits to its client by reducing the selling price. What would be the new selling price that would maintain Tesla's operating cash flow in USD in Part (c) and would pass all benefits to its client at the same time? (2 marks) e. If the spot rate increases to CNY 7/USD, Tesla would like to maximize its operating cash flow in USD by changing the selling price and variable cost in CNY (main input in USD and exports are NOT changed) but its actions are restricted by the following constraints: i. The selling price cannot increase by more than 20% from the original selling price; ii. The variable unit cost in CNY (not including the main input) can only be between 90% and 110% of the original cost; iii. Units sold will reduce at the same rate as the selling price increases. For example, units sold will reduce by 10% if the selling price increases by 10%. Besides sales in China, Tesla Shanghai Super Factory also exports cars to Australia. For the rest of the question, assume that the additional sale to Australia is 1,000 cars and the price is AUD 60,000. The shipment cost per exported car is CNY5,000. The sales revenue in Australia will be translated to the U.S. directly at the spot exchange rate. Now the exchange rate is AUD1.5/USD and CNY 6.5/USD. (Note: all productions are in China, but Chinese corporate tax is exempt for these exports. Please do NOT consider U.S. tax or Australian tax). c. What are the operating cash flows in dollars now? (2 marks) d. If the spot rate reduces to CNY6.0/USD, Tesla would like to pass all benefits to its client by reducing the selling price. What would be the new selling price that would maintain Tesla's operating cash flow in USD in Part (c) and would pass all benefits to its client at the same time? (2 marks) e. If the spot rate increases to CNY 7/USD, Tesla would like to maximize its operating cash flow in USD by changing the selling price and variable cost in CNY (main input in USD and exports are NOT changed) but its actions are restricted by the following constraints: i. The selling price cannot increase by more than 20% from the original selling price; ii. The variable unit cost in CNY (not including the main input) can only be between 90% and 110% of the original cost; iii. Units sold will reduce at the same rate as the selling price increases. For example, units sold will reduce by 10% if the selling price increases by 10%
