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Hurte-Paroxysm Products, Inc. (A). Hurte-Paroxysm Products, Inc. (HP) of the United States, exports computer printers to Brazil, whose currency, the reais (BRL) has been trading
Hurte-Paroxysm Products, Inc. (A). Hurte-Paroxysm Products, Inc. (HP) of the United States, exports computer printers to Brazil, whose currency, the reais (BRL) has been trading at BRL3.60 = USD1.00. Exports to Brazil are currently 45,000 printers per year at the reais-equivalent of $190 each. A rumor exists that the reais will be devalued against the dollar to BRL4.20 within two weeks by the Brazilian government. Should the devaluation take place, the reais is expected to remain unchanged for another decade. Accepting this forecast as given, HP faces a pricing decision that must be made before any actual devaluation: HP may either (1) maintain the same reais price and, in effect, sell for fewer dollars, in which case Brazilian volume will not change, or (2) maintain the same dollar price, raise the reais price in Brazil to compensate for the devaluation, and experience a 20% drop in volume. Direct costs in the United States are 60% of the U.S. sales price. a. What would be the short-run (one-year) impact of each pricing strategy? b. Which do you recommend? a. If HP maintains the same reais price and same unit volume, what will be the firm's gross profits? (Round to the nearest dollar.)
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