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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
units at the yuanCNY equivalent of GBP each. The Chinese yuanrenminbi has been trading at CNYGBP
but a reliable financial forecasting firm predicts that the value of the renminbi will depreciate by next week to
CNYGBP 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 per annum for eight years if it keeps the same yuan sales price. At the end of years, Lux Expo will not be able to export to China due to expected trade barriers. After the yuan is devalued to CNYGBP 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
per annum for eight years, starting from the lower initial base of unitsGBP 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
Under these conditions, what do you think Lux Expo's pricing policy should be
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