Question
Lux Expo is a British manufacturer of luxury cars that exports its luxury sports cars to several Chinese car dealers. The annual sales volume is
Lux Expo is a British manufacturer of luxury cars that exports its luxury sports cars to several Chinese car dealers. The annual sales volume is 47,000
units at the yuan (CNY) equivalent of GBP 89,500 each. The Chinese yuan (renminbi) has been trading at CNY9.059.05/GBP,
but a reliable financial forecasting firm predicts that the value of the renminbi will depreciate by next week to
CNY10.1510.15/GBP, after which it will stabilize for a few years. Assume that the pound costs will not change. Suppose that the financial management believes that the sales volume will increase at 22% per annum for eight years if it keeps the same yuan sales price. At the end of 10 years, Lux Expo will not be able to export to China due to expected trade barriers. After the yuan is devalued to CNY10.1510.15/GBP, no further devaluations are expected. If Lux Expo raises the yuan price so as to maintain its GBP price, the volume will increase at only 4%
per annum for eight years, starting from the lower initial base of 47,000 units (GBP costs will not change), and at the end of eight years Lux Expo will stop exporting to China. Lux Expo's weighted average cost of capital is 13%.
Under these conditions, what do you think Lux Expo's pricing policy should be?
I'm trying to figure out the Direct Cost as Percentage of Sales Price % so I can caluclate the Direct Cost GBP.
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