Hurte-Paroxysm Products, Inc. (B). Hurte-Paroxysm Products, Inc. (HP) of the United States, exports computer printers to...
Fantastic news! We've Found the answer you've been seeking!
Question:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/6649b328922e1_0236649b327bf03d.jpg)
Transcribed Image Text:
Hurte-Paroxysm Products, Inc. (B). Hurte-Paroxysm Products, Inc. (HP) of the United States, exports computer printers to Brazil, whose currency, the reais (BRL) has been trading at BRL3.60/USD1.00. Exports to Brazil are currently 40,000 printers per year at the reais-equivalent of $230 each. A rumor exists that the reais will be devalued against the dollar to BRL4.10 within two weeks by the Brazilian government. Should the devaluation take place, the reais is expected to remain unchanged for another decade. Accepting this forecast as given, HP faces a pricing decision that must be made before any actual devaluation: HP may either (1) maintain the same reais price and, in effect, sell for fewer dollars, in which case Brazilian volume will not change, or (2) maintain the same dollar price, raise the reais price in Brazil to compensate for the devaluation, and experience a 20% drop in volume. Direct costs in the United States are 60% of the U.S. sales price. HP also believes that if it maintains the same price in Brazilian reais as a permanent policy, volume will increase at 10% per annum through year six, costs will not change. At the end of six years, HP's patent expires and it will no longer export to Brazil. After the reais is devalued to BRL4.10 = USD1.00, no further devaluation is expected. HP raises the price in reais so as to maintain its dollar price, volume will increase at only 4% per annum through year six, starting from the lower initial base of 32,000 units. Again, dollar costs will not change, and at the end of six years, HP will stop exporting to Brazil. HP's weighted average cost of capital is 14%. Given these considerations. what do you recommend for HP's pricing policy? Justify your recommendation. If HP maintains the same dollar price, raises the reais price in Brazil to offset the devaluation, and experiences a 20% drop in unit volume, the annual sales price per unit is $230. The direct cost per unit is 60% of the sales, or $230 0.60 = $138 and the sales volume in year 1 is 40,000 (1 -0.20) = 32,000. Calculate the gross profits for years 1 through 6 in the following table: (Round to the nearest dollar.) Case 2 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Sales volume (units) 32,000 Sales price per unit $ 230 $ 230 $ 230 $ 230 $ 230 $ 230 Total sales revenue Direct cost per unit $ 138 $ 138 $ 138 $ 138 $ 138 $ 138 Total direct costs Gross profits Hurte-Paroxysm Products, Inc. (B). Hurte-Paroxysm Products, Inc. (HP) of the United States, exports computer printers to Brazil, whose currency, the reais (BRL) has been trading at BRL3.60/USD1.00. Exports to Brazil are currently 40,000 printers per year at the reais-equivalent of $230 each. A rumor exists that the reais will be devalued against the dollar to BRL4.10 within two weeks by the Brazilian government. Should the devaluation take place, the reais is expected to remain unchanged for another decade. Accepting this forecast as given, HP faces a pricing decision that must be made before any actual devaluation: HP may either (1) maintain the same reais price and, in effect, sell for fewer dollars, in which case Brazilian volume will not change, or (2) maintain the same dollar price, raise the reais price in Brazil to compensate for the devaluation, and experience a 20% drop in volume. Direct costs in the United States are 60% of the U.S. sales price. HP also believes that if it maintains the same price in Brazilian reais as a permanent policy, volume will increase at 10% per annum through year six, costs will not change. At the end of six years, HP's patent expires and it will no longer export to Brazil. After the reais is devalued to BRL4.10 = USD1.00, no further devaluation is expected. HP raises the price in reais so as to maintain its dollar price, volume will increase at only 4% per annum through year six, starting from the lower initial base of 32,000 units. Again, dollar costs will not change, and at the end of six years, HP will stop exporting to Brazil. HP's weighted average cost of capital is 14%. Given these considerations. what do you recommend for HP's pricing policy? Justify your recommendation. If HP maintains the same dollar price, raises the reais price in Brazil to offset the devaluation, and experiences a 20% drop in unit volume, the annual sales price per unit is $230. The direct cost per unit is 60% of the sales, or $230 0.60 = $138 and the sales volume in year 1 is 40,000 (1 -0.20) = 32,000. Calculate the gross profits for years 1 through 6 in the following table: (Round to the nearest dollar.) Case 2 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Sales volume (units) 32,000 Sales price per unit $ 230 $ 230 $ 230 $ 230 $ 230 $ 230 Total sales revenue Direct cost per unit $ 138 $ 138 $ 138 $ 138 $ 138 $ 138 Total direct costs Gross profits
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
To add new components or tools into the NetBeans IDE, one can use . a. The JFrame tool b. Plugins c. The PHP tool d. JavaFX
-
A bucket of water is set spinning about its symmetry axis. Determine the shape of the water in the bucket.
-
Describe major differences among countries in financial reporting, taxation, and tariffs and duties that affect managerial decisions.
-
In deciding whether to drop its electronics product line, Amazon.com would consider a. the costs it could save by dropping the product line b. the revenues it would lose from dropping the product...
-
Pevnick Inc. began operations as a detective agency on January 1, 2015. The trial balance columns of the worksheet for Pevnick Inc. at March 31 are as follows. Other data: 1. Supplies on hand total...
-
1. The project life is ten years with no salvage value 2. Inflation in the US is expected to be 3% annually 3. The plant will cost $4,000,000 to construct and will be incurred in Year 0 4. Estimated...
-
A friend of yours is calling you. He tells you about his own cryptocurrency he has created. The coins have little to no value other than as a unit of exchange. That would not stop consumers from...
-
In a survey of 2302 adults, 743 say they believe in UFOs. Construct a 99% confidence interval for the population proportion of adults who believe in UFOS. A 99% confidence interval for the population...
-
A visiting Canadian CEO discovers that despite the company's policy against child labor, a foreign subsidiary in a developing country has employed a 12-year-old girl to work on a factory floor. He...
-
A Java code that inputsa letter from a telephone keypad and then tells you what digit or number it goes with. (Use charAt() and indexOf() methods). Output: CoursHeroTranscribedText Example Input: A...
-
In order to operate its customer support activity, Sandhill's Amusement Park incurred $316800 in annual costs (spread evenly amongst the four quarters of the year). Due to the large number of...
-
a company's common stock has a beta of 0.70. The expected return of the market is 15% and the risk-free rate is 3%. The company expects to pay a constant dividend of $2.10 per year forever. What is...
-
Have you been following recent news and wonder how it tracks with our class? On March 26, a cargo ship collided with the Francis Scott Key Bridge in Baltimore. In response the Federal government...
-
If the annual fixed costs are 54,000 dinars, the occupation expense represents 20%, the contribution margin is 25%, and the unit selling price is 40 dinars. Required: Calculate the closing point of...
-
a. Assume an investor can earn .12 before investor tax and .07248 after investor tax. The tax rate on ordinary income is .396. If the corporation pays a $100 dividend, after 20 years the investor...
-
. Determine feasibility of business plan (Learning Objective 2) Brian and Nui Soon live in Macon, Georgia. Two years ago, they visited Thailand. Nui, a professional chef, was impressed with the...
-
If equity investors contribute $1,000,000 and want a .30 return at time 4, how much do they require at time 4?
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App