The owner of Mobile Select, Bruce Smith, has had discussions with a camping outfitter in Glasgow about selling the companys mobile homes and recreation vehicles in the U.K. The camping outfitter, Sean Pogue, wants to add Mobile Select to an existing product line that he offers. Pogue has indicated that his sales of Mobile Select motorcoaches and recreation vehicles will be 2.3 million per month; all sales are made in British Pounds ( ).

Pogue will make a 6% commission of all sales, also to be paid in British Pounds. Mobile Selects products are customized to the customers order. Orders are delivered 90 days after they are placed by the seller, Sean Pogue. Sean Pogue will pay Mobile Select 90 days after the delivery of the vehicle. This arrangement is being contemplated by Mobile Selects Bruce Smith and the dealer, Sean Pogue.

Bruce Smith has the ability to meet the extra orders from Sean Pogue with existing capacity. However, he is uncertain about the risks of selling mobile homes and other vehicles outside of the United States. Bruce Smith notices that the current exchange rate is $1 = 0.72 . At the current rate of exchange, Mobile Select would incur production costs equal to 70 percent of Mobile Selects U.K. gross sales. This would be an expense in dollars. In addition, there would be the aforementioned commission paid to Sean Pogue which reduces gross sales but is paid in British Pounds.

You have been asked to analyze this arrangement and address the following questions.

1. Complete the following table to determine if there is a benefit to Mobile Select to add Pogues sales at the current exchange rate under the terms described.

Scenario 1	Mobile Select
Gross Sales in Pounds ( )
Less: Commission Paid to Pogue ( )1
Equals: Net Sales ( )
Current Exchange Rate $1 = 0.72 .	0.72
Sales in $US Dollars2
Less: Production Costs in $US Dollars3
Equals: Earnings Before Tax in $US Dollars

¹Pogues commission as a decimal multiplied by Pogues Gross Sales

² The conversion of to $USD at the exchange rate in the table

³Gross Sales in $USD multiplied by the stated production cost, 70%

2. Suppose that the dollar strengthens versus the British Pound. Complete the table below using a new rate of exchange whereby the $USD appreciates versus the British Pound .

Scenario 2	Mobile Select
Gross Sales in Pounds ( )
Less: Commission Paid to Pogue ( )1
Equals: Net Sales ( )
Current Exchange Rate $1 = 0.91 .	0.91
Sales in $US Dollars2
Less: Production Costs in $US Dollars3
Equals: Earnings Before Tax in $US Dollars

¹Pogues commission as a decimal multiplied by Pogues Gross Sales

² The conversion of to $USD at the exchange rate in the table

³Gross Sales in $USD multiplied by the stated production cost, 70%

3. With the dollar strength versus the British Pound, what happens if Pogues sales are 1.8 million? Complete the table below using a new rate of exchange from question 2 and Gross Sales are 1,800,000.

Scenario 3	Mobile Select
Gross Sales in Pounds ( )	1,800,000
Less: Commission Paid to Pogue ( )1
Equals: Net Sales ( )
Current Exchange Rate $1 = 0.91 .	0.91
Sales in $US Dollars2
Less: Production Costs in $US Dollars3
Equals: Earnings Before Tax in $US Dollars

¹Pogues commission as a decimal multiplied by Pogues Gross Sales

² The conversion of to $USD at the exchange rate in the table

³Gross Sales in $USD multiplied by the stated production cost, 70%

4. Compare the results from Scenarios 1 to 3. What happens to Mobile Select if the dollar strengthens against the pound? What is the effect on Mobile Select of a stronger dollar and a lower level of sales in the UK provided by Pogue?
5. What would you identify as the advantages for Mobile Select to enter into this arrangement with Pogue? What would you identify as the risks? Should Bruce Smith enter into the arrangement with Pogue? Why or why not?
6. It may be that Bruce Smith needs to contemplate whether he is subject to behavioral biases as he evaluates the terms. What are some concepts from behavioral finance that Bruce Smith should address before making a decision?