Question: Copy Cat Incorporated has signed a deal to make vintage Nissan
Copy-Cat, Incorporated has signed a deal to make vintage Nissan 240-Z 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 Copy-Cat plans on selling 500 cars a year at an initial cost price of $45,000 and the cost of production is ¥4,036,500, what is the annual profit in real dollars for Copy-Cat? 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?
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