EXHIBIT 1: PRE-BREXIT INCOME STATEMENT (ANNUALIZED), ASSUMING 1.00 = 1.36 Per Unit 200 Quantity (Units) 40,000 8,000,000 200,000 2,647,059 90 40,000 3,600,000 Sales in U.K. U.K. Costs Contract Labour (variable cost) Import of Coffee Machines (invoiced at 90 each) Marketing and Distribution Costs (assumed to be fixed costs) Other Fixed Costs: Overheads, Interest, Depreciation, Rent, Salaries, etc. 400,000 500,000 Profit (U.K. Subsidiary) 4,252,941 Or 5,784,000 Source: Company documents. 1. Recalculate the income statement shown in case Exhibit 1* using the post-Brexit exchange rate of 1.00= 1.161, assuming that there is no change in prices charged by the company to U.K. buyers. Assume that fixed costs remain fixed and variable costs vary proportionally to volume or quantity sold. Calculate profit in both pounds and euros. Show all your work. (3 points in total) 2. Recalculate the income statement shown in case Exhibit 1 using the post-Brexit exchange rate of 1.00 = 1.16, assuming that the U.K. subsidiary increases its price to U.K. buyers to 235 per unit. Assume that fixed costs remain fixed and variable costs vary proportionally to volume or quantity sold. Assume that U.K. purchasers' consumer behavior is somewhat elastic and that market research suggests their elasticity = 1.1. Using the simple price elasticity formula (see p. 3), calculate profit in both pounds and euros. Show all your work. (4 points in total) 3. Recalculate the income statement shown in case Exhibit 1 using the post-Brexit exchange rate of 1.00= 1.16, assuming that the U.K. subsidiary increases its price to U.K. buyers to 235 per unit. Assume that fixed costs remain fixed and variable costs vary proportionally to volume or quantity sold. Assume that U.K. purchasers' consumer behavior is somewhat elastic and that market research suggests their elasticity = 0.8. Using the simple price elasticity formula (see p. 3), calculate profit in both pounds and euros. Show all your work. (3 points in total) = 1 = GBP = United Kingdom pound; = euro; currency amounts are in unless otherwise specified: US$1.00 = 0.77 on July 6, 2016; US$1.00 = 0.90 on July 6, 2016. 1