Question
RMD Medical Supplies, Inc. of the United States exports CT Scanners to Italian hospitals. Sales are currently 250 units per year priced in euros the
RMD Medical Supplies, Inc. of the United States exports CT Scanners to Italian hospitals. Sales are currently 250 units per year priced in euros the equivalent of $350,000/unit. The euro has been trading at $1.0672/ but it is expected to depreciate in the near future by 8.40%. After that, it will remain unchanged for the next five years. Faced with this eventuality and recognizing its relatively weak competitive position in Italy, RMD decides to keep the same euro price. RMD's forecast for the coming five years is that it will lose 10% of its market share in Italy in year one. After that, it projects its sales volume to increase by around 4% per year in each of the remaining four years of its analysis horizon. All costs of producing, shipping, and installing the scanners in Italian hospitals are assumed to remain constant at $275,000 per scanner. RMD's cost of capital is 12%/year.
Calculate the expected $/ spot price after the 8.40% depreciation of the euro.
Assume the correct answer to the above question is $1.0460/, what would be the dollar value of each scanner after the euro's depreciation if RMD decides to keep the same euro price?
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