Question: Please do not publish, as I do not want to get in troubles. Please advise if i solved this exercise correct. I calculated the (3)
Please do not publish, as I do not want to get in troubles.
Please advise if i solved this exercise correct. I calculated the (3) and (4), the new exchange, costs.
| Since dollar is depreciating, a dollar buys fewer units of foreign currency than before its depreciation. Therefore, the indirect quotes (which show the number of units of foreign currency per dollar) should all be reduced by 10%. Then we convert the new indirect quotes to direct quotes (divide 1 by an indirect quote to get a direct quote). | ||||||||
| Change in dollar versus all currencies (positive is appreciation, negative is depreciation): | ||||||||
| We will reproduce selected data the table from the top of the spreadsheet, but there are two additional columns for the new exchange rates. | ||||||||
| 1 | reduced by 10% | |||||||
| Old Direct Quotations (3) | Old Indirect Quotations (4) | New Direct Quotations (3) | New Indirect Quotations (4) | |||||
| Euro () | 1.16410 | 0.85903 | 1.2934 | 0.7731 | ||||
| U.K. (British) pound () | 1.30710 | 0.76505 | 1.4523 | 0.6885 | ||||
| Canadian dollar ($) | 0.75942 | 1.31680 | 0.8438 | 1.1851 | ||||
| Japanese yen () | 0.00886 | 112.84000 | 0.0098 | 101.5560 | ||||
| Mexican peso ($) | 0.05292 | 18.89550 | 0.0588 | 17.0060 | ||||
| Swiss franc (SFr) | 1.00110 | 0.99890 | 1.1123 | 0.8990 | ||||
| Now, we will recompute the component costs and sales price of the MC-28. | ||||||||
| Rosewood and mahogany | ||||||||
| Cost of rosewood and mahogany in $ | = | Cost in pesos | x | Direct spot exchange rate ($/peso) | ||||
| Cost of rosewood and mahogany in $ | = | 2,750.00 | x | 0.0588 | $161.70 | |||
| Cost of rosewood and mahogany in $ | = | $161.70 | ||||||
| Spruce | ||||||||
| Cost of spruce in $ | = | Cost in CdnDlr | x | Direct spot exchange rate ($/CdnDlr) | ||||
| Cost of spruce in $ | = | 200.00 | x | 0.8438 | $168.76 | |||
| Cost of spruce in $ | = | $168.76 | ||||||
| Ebony and electronics | ||||||||
| Cost of ebony and electronics in $ | = | Cost in yen | x | Direct spot exchange rate ($/yen) | ||||
| Cost of ebony and electronics in $ | = | 12,400.00 | x | 0.0098 | $121.52 | |||
| Cost of ebony and electronics in $ | = | $121.52 | ||||||
| Parts and labor | ||||||||
| Cost of parts and labor in $ | = | Cost in dollars | ||||||
| Cost of parts and labor in $ | = | 600.00 | 600 | |||||
| Cost of parts and labor in $ | = | $600.00 | ||||||
| TOTAL COST OF THE MC-28 (in dollars) = | $1,051.98 | |||||||
| Revenue from sale of the MC-28 in England | ||||||||
| Sale price (in $) | = | Price in pounds | x | Direct spot exchange rate ($/pound) | ||||
| Sale price (in $) | = | 1,600 | x | 1.45230 | ||||
| Sale price (in $) | = | $2,323.68 | ||||||
| MC-28 SALES PRICE (in dollars) = | $2,323.68 | |||||||
| The dollar profit from the sale of the MC-28 is simply the sales revenue minus the total cost. | ||||||||
| Dollar profit = | - | Total cost | ||||||
| Dollar profit = | $2,323.68 | - | 1,051.98 | $1,271.70 | ||||
| Dollar profit = | $1,271.70 | |||||||
| The percentage profit is determined as the dollar profit divided by the total cost. | ||||||||
| % profit = | $ profit | / | Total cost | |||||
| % profit = | $1,271.70 | / | 1,051.98 | 120.89% | ||||
| % profit = | 120.89% | |||||||
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