Consider the Case of Albion Computers discussed in Chapter $9.$ Assume that the pound is

expected to depreciate to $$\frac{1\mathrm{.}50}{}$ from the benchmark case of $$\frac{1\mathrm{.}60}{}.$ And the price of local

variable cost increases by $6\%.$ The company decides to increase their unit price to $1,200$ due to

inflation and higher transportation cost, and expects the sales volume to drop to $40,000$ units.

a$)$ Compute the projected annual cash flow in dollars $($see the Excel spreadsheet posted under

Content on the course site$).$

b$)$ Compute the projected operating gains$/$losses over the four$-$year term and assume a $12\%$

discount rate and constant annual cash flows. Below is the annuity formula.

The present value of an annuity $=\frac{\text{C}\text{a}\text{s}\text{h}\text{F}\text{l}\text{o}\text{w}}{r}[1-\frac{1}{(1+r{)}^t}]$

r: discount rate

t: number of cash flows