You are the financial controller of Puredrop Berhad which has just begun exporting its water purification equipment to the major Indian cities of Mumbai and Bangalore. Sales are currently 1.5 million units per year and priced at Malaysian Ringgit (MYR) 2,200 each. The Indian Rupee (INR) has been trading at INR 16.80/MYR, but an Indian advisory service predicts the currency will depreciate in value by 7.14% due to measures undertaken by the new Indian government to stimulate exports and grow its economy. Puredrop Berhad faces a pricing decision in the face of the impending depreciation. Direct costs are 75% of the MYR sales price. It may either:

1. Maintain the same INR price and in effect sell for fewer MYR, in which case the sales volume will not change; or

2. Maintain the same MYR price by raising the INR price in India to offset the depreciation, and experience a 10% drop in unit volume.

You have just come from a meeting with the Head of the Companys Marketing Department, who believes that if it maintains the same INR sales price, volume will increase at 11.5% per annum for the next four years at the starting base of 1.5 million units per year. On the other hand, if Puredrop Berhad raises the INR price so as to maintain its MYR price, volume will increase at only 2.75% per annum with a lower initial base, i.e. lesser by 550,000 units from the aforementioned base. After the Indian Rupee depreciates by 7.14%, direct costs in Malaysia are expected to increase by 1.75% due to long term component supply contracts. Puredrop Berhads weighted average cost of capital is 12%. At the end of four years, the Company will no longer export the water purification equipment to India as it would have reached the end of its product life cycle.

Required:

(a) Determine the immediate implications of each of the above pricing alternative, showing

all calculations. (10 marks)

(b) Develop an appropriate long term pricing policy for Puredrop Berhad, showing all

calculations.

(10 marks)

(c) Critically discuss FOUR (4) proactive strategies that can be adopted by Purdrop Berhad. (10 marks)