KT Televisions, a US firm, has a Chinese subsidiary that manufactures and sells TVs in China.

a. Main input is priced in USD (USD110/unit)

b. All other costs are in RMB (Fixed cost=RMB4M, Variable cost= RMB460/unit).

c. Depreciation = RMB1.3M

d. S0 = RMB6.26/USD

e. Expects to sell 7,000 TVs this year at RMB2,000 each.

f. Tax rate=30%; assuming tax credits are available for immediate use if losses occur

You are required to show all your workings: a) What are the operating cash flows in RMB and dollars?

b) How many unit KT Televisions needs to sell to break-even in operating cash flows in dollars? (Hint: round your answer up to the nearest unit)

Ignore part (a) and part (b) for the following questions and assume that the normal sales are 8,000 Units for the rest of the questions. c) What are your operating cash flows in dollars now?

d) If the spot rate reduces to RMB4.6/USD, KT would like to pass all benefits to his client by reducing selling price. What would be the new selling price that would maintain his profit (operating cash flows in dollars) in Part (c) and would pass all benefits to his client at the same time?