Rolls-Royce Turbine Engines. Rolls-Royce is struggling with its pricing strategy with a number of its major customers in Continental Europe, particularly Airbus. Since Rolls-Royce is a British company with most manufacturing of the Airbus engines in the United Kingdom, costs are predominantly denominated in British pounds. But in the period shown in the popup window, 20072009. the pound steadily weakened against the euro. Rolls-Royce has traditionally denominated its sales contracts with Airbus in Airbus' home currency, the euro. After completing the table answer the following questions: a. Assuming each Rolls-Royce engine marketed to Airbus is initially priced at 22.25 million each, how has the price of that engine changed over the period shown when priced in euros at the current spot rate? b. Complete the table in the popup window. What is the cumulative percentage change in the price of the engine in euros for the two-year period? c. If the price elasticity of demand for Rolls-Royce turbine sales to Airbus is relatively inelastic, and the price of the engine in British pounds never changes over the period, what does this price change d. Compare the prices and volumes for the first quarter of each of the three years shown in the table in part b above. Who has benefited the most from the exchange rate changes? Date 1Q 2007 2Q 2007 3Q 2007 Price (milions of pounds, E) E 22.25 2225 22 25 Spot rate (euro = 1.00 pound) 14933 1.4717 1.4667 Price (millions of euros, ) E 33.23 4Q 2007 22,25 14131 1Q 2008 20 2008 22.25 22.25 1.3196 12635 49 2008 10 2009 30 2008 22.25 f Date Price (millions of pounds, C) Spot rate (euro - 1.00 pound) Price (milions of euros, 20 2009 22 25 1.1355 22 25 1.1916 E 22.25 E 1.1004 39 2009 22.25 1.1482 4Q 2009 22 25 1.1055 1.2557 ark i Data Table W. S- de ne Date 1Q 2007 1Q 2008 1Q 2009 % Chg 22.25 % 22.25 1.4933 22.25 1.3196 1.1004 Q 22 1.4 33.23 29.36 24.48 % Price (in millions of pounds, ) Spot rate (/L) Price (in millions of euros, ) Sales volume (engines) Total cost to Airbus (millions of ) Total revenue to RR (millions of ) 100 110 120 20.00 % 33 3,323 3,230 2,938 % 2,225 2,448 2,670 % Q 24 1.4 Print Done Rolls-Royce Turbine Engines. Rolls-Royce is struggling with its pricing strategy with a number of its major customers in Continental Europe, particularly Airbus. Since Rolls-Royce is a British company with most manufacturing of the Airbus engines in the United Kingdom, costs are predominantly denominated in British pounds. But in the period shown in the popup window, 20072009. the pound steadly weakened against the curo. Rolis-Royce has traditionally denominated its sales contracts with Airbus in Airbus' home currency, the euro. After completing the table answer the following questions: a. Assuming each Rolls-Royce engine marketed to Airbus is initially priced at 22.25 milion each, how has the price of that engine changed over the period shown when priced in euros at the current spot rate? b. Complete the table in the popup window. What is the cumulative percentage change in the price of the engine in euros for the two-year period? c. If the price elasticity of demand for Rolls-Royce turbine sales to Airbus is relatively inelaste, and the price of the engine in British pounds never changes over the period, what does this price change d. Compare the prices and volumes for the first quarter of each of the three years shown in the table in part b above. Who has benefitted the most from the exchange rate changes? Date 1Q 2007 20 2007 30 2007 Price (milions of pounds, E) E 22.25 2225 22.25 Spot rate (euro 100 pound) 1.4933 1.4717 1.4667 Price (millions of euron, 6 33.23 4Q 2007 22 25 1.4131 1Q 2008 20 2008 22.25 2225 1.3196 1.2635 4Q 2009 Date Price millions of pounds, E) Spot rate (euro 100 pound) Price (milions of ouros, ) 30 2008 22.25 1.2557 40 2008 22 25 1.1910 1Q 2000 22.25 1.1004 20 2009 22 25 1.1355 39 2000 22 25 1.1482 22 25 1.1056
