TRANSACTION, ECONOMIC, AND TRANSLATION EXPOSURE TABLE 18.4 Dollar Profit per Swedish Bicycle Sale: No Change in Exchange Rate (inflation the same in both countries) Year 1 Year 2 Yoar 3 Year 4 Revenue $ 1,880 $ 1,974 $2,072.70 $2,176.33 Cost $ 1,200 $ 1,260 $1,323.00 $1,389.15 Krona profit $ 680 $ 714 $ 749.70 $ 787.33 Exchange rate 6.5477 6.5477 6.5477 6.5477 Dollar profit $103.85 $109.05 $ 114.50 $ 120.25 TABLE 18.5 Dollar Profit per Swedish Bicycle Sale: Increase in Exchange Rate Due to Different Inflation Rates Year 1 Year 2 Year 3 Year 4 Revenue $ 1,880 $ 1,974 $2,072.70 $2,176.33 Cost $ 1.200 $ 1.260 $1,323.00 $1.389.15 Krona profit $ 680 $ 714 $ 749.70 $ 787.33 Exchange rate 6.5477 6.6587 6.7715 6.8863 Dollar profit $103.85 $107.23 $ 110.71 $ 114.33 1. PROBLEM Economic exposure. Cars R Us, Incorporated has signed a deal to make vintage Nissan 240-2 sports cars for the next three years. The cars will be built in Japan and shipped to the United States for sale. The current indirect rate is 103.50 for dollars and yen. The inflation rate for parts and labor in Japan is anticipated to be 2.5% over the next three years, and the overall Inflation rate for Japan is anticipated to be 3.5% over the next three years. The overall Inflation rate in the United States is expected to be 4.0% over the next three years. (Note: rates are stated on an annual basis.) If Cars R Us plans on selling 500 cars a year at an initial cost price of $45,000 and the cost of production is 84,036,500, what is the annual profit In real dollars for Cars R Us? Assume that it takes one year for production and that all sales revenues and production costs are at the end of the year. Is this profit rising or falling each year? Why