The US multinational Hewlett Packard (HP) exports printers to Brazil, whose currency, the real (R $), trades at R $ 3.40 / US $. Exports to Brazil amount to 50,000 printers per year and are equivalent to $ 200 per unit. There is a rumor that the real will be devalued by the Brazilian government to R $ 4.00 / US $ within two weeks. Should the devaluation take place, the real is expected to remain unchanged for another decade. HP accepts this prediction and faces a product pricing dilemma:

(1) maintain the same real value  and agree to sell the printers for less dollars, in which case the volume is expected to grow to 10% per year for four years. Costs do not change. the, (2) to maintain the same value of the dollar, increasing the price in real terms, to be compensated by the devaluation, where the volume will increase by only 4% per year for four years, starting from the lowest initial base of 40,000 units. Costs do not change.

• The weighted average cost of the company is 12% ..
• Direct costs in the US account for 60% of the sale price.
• At the end of four years the company patent expires and will no longer be exported to Brazil.

Given these considerations, what pricing policy do you propose for HP? Justify your answer.

Answer rating: 100% (QA)

Option 1 20000 Particulars Sales Price USD Exchange Rate RS USS 34 Sales Price Real R 68000 Contribu... View the full answer