Rolls-Royce Turbine Engines. Rolls-Royce is struggling with its pricing strategy with a number of its major customers in Continental Europo, particularly Airbus. Since Rolls-Royco 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, 2007-2009, the pound steadily weakened against the ouro. 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 $22.50 million cach, how has the price of that engine changed over the period shown when priced in euros at the current spot rato? b. Comploto 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 mean for Rolls-Royce's total sales revenue on sales to Airbus of this engino? 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? a Compute the sales prices por unit of engine in euros for the three-year period in the following table: (Round to two decimal places) Date 20 2007 3Q 2007 1Q 2008 E 40 2007 22.50 E 20 2008 22.50 E 22.50 22.50 E Price (millions of pounds, E) Spot rate (euro - 1.00 pound) Price (millions of euros, 10 2007 22.50 1.4918 33,57 22.50 1.3198 1.4733 1.4696 14107 1.2617 30 2008 19 2009 20 2009 3Q 2009 40 2009 Date Price (millions of pounds, f) Spot rate (euros 1.00 pound) Price (millions of euros ) E 22 50 22.50 E 22.50 40 2008 22.50 1.1924 22.50 1.2590 22.50 1.1017 1.1375 1.1467 1.1066 in Data table 1Q 2007 te ta 2Q 2007 3Q 2007 4Q 2007 1Q 2008 20 2008 22.50 EN 22.50 22.50 22.50 22.50 22.50 Date Price (millions of pounds, ) Spot rate (euro = 1.00 pound) Price (millions of euros, ) os 1.4918 1.4733 1.4696 1.4107 1.3198 1.2617 E 33.57 m E th E E Date 39 2008 4Q 2008 10 2009 20 2009 3Q 2009 4Q 2009 mil E 22.50 E 22.50 22.50 E 22.50 22.50 22.50 atel Price (millions of pounds, ) Spot rate (euro = 1.00 pound) Price (millions of euros, 1.2590 1. 1924 1.1017 1.1375 1.1467 1.1066 (mi (mil rate Print Done (mil Data table Date 1Q 2007 1Q 2008 1Q 2009 % Chg 22.50 22.50 22.50 % 1.4918 1.3198 1.1017 Price (in millions of pounds, ) Spot rate () Price (in millions of euros, ) Sales volume (engines) Total cost to Airbus (millions of ) Total revenue to RR (millions of ) 33.57 29.70 24.79 % 200 220 240 20.00 % 6.714 6,534 5,950 % 4,500 4,950 5,400 % Print Done bf euros
