Suppose you are leading the purchase department of an Australian MNE. The company wishes to purchase a device and is making a choice between international suppliers.

Supplier A

A US firm. The quoted price for the device is $$49,000$ and the shipping cost is $$350.$

Further, importing the device from the US supplier entails an import duty of $8\%$ of the quoted price converted

to Australian dollars.

Supplier B

A Japanese firm. The quoted price for the device is $5,500,000$ and the shipping cost is $32,500.$

Further, importing the device from the Japanese supplier entails an import duty of $8\%$ of the quoted price converted

to Australian dollars.

You are further given the following exchange rate information:

$$ spot exchange rate for the US dollar against the Australian dollar is $$0\mathrm{.}65/$A$

$$ spot exchange rate for Japanese yen against the US dollar is $110\mathrm{.}20/$$

You have the following additional product information:

$$ the US supplier quotes that their device can run for $11,000$ hours without any maintenance and comes with a $5-$year warranty.

$$ the Japanese supplier quotes that their device can run for $13,000$ hours without any maintenance and comes with a $4-$year warranty.

Answer the following questions:

$1.$ Which of the two suppliers will you choose if your choice is solely based on the required Australian dollar cash outlay?

$2.$ Will you change your decision if you consider the additional product information?

iii. Suppose the inflation rates in Australia and the US are $2\%$ and $8\%,$ respectively. Determine the Australian dollar cash outlay required to purchase the product from the US supplier after a year.

Assume the PPP holds. Also, assume that inflation affects only the quoted price and exchange rate, not the shipping cost and import duty rate.