Question 8 (3 points) Suppose that a U.S. computer company has a wholly owned British subsidiary, Albion Computers PLC, which manufactures and sells personal computers in the U.S. market. Albion Computers imports microprocessors from Intel, which sells them for $512 per unit. At the current exchange rate of $1.60 per pound, each Intel microprocessor costs 320. Albion Computers hires British workers and sources all the other inputs locally. Albion faces a 50 percent income tax rate in the U.K. The exhibit below summarizes projected operations for Albion Computers, assuming that the exchange rate will remain unchanged at $1.60 per pound. The company expects to sell 50,000 units of personal computers per year at a selling price of 1,000 per unit. The 3 unit variable cost is 650, which comprises 320 for the imported input and 330 for the locally sourced inputs. Needless to say, the pound price of the imported input will change as the exchange rate changes, which, in turn, can affect the selling price in the U.K. market. Each year, Albion incurs fixed overhead costs y 4 million for rents, property taxes, and the like. regardless of output level. As the exhibit shows, the projected operating cash flow is 7,250,000 per year, which is equivalent to S11.600.000 at the current exchange rate of $1.60. Sales (50,000 units at 1,000/unit) 50,000,000 Variable costs (50,000 units at 650/unit) 32.500.000 Fixed overhead costs 4,000,000 Depreciation allowances 1.000.000 Net profit before tax 12,500,000 Income tax (50%) 6,250.000 Profit after tax 6,250,000 Ada back depreciation 1.000.000 Operating cash flow in pounds 7.250,000 Operating cash flow in dollars $11,600,000 Now, consider the possible effect of a depreciation of the pound on the projected dollar operating cash flow of Albion Computers. Assume that the pound may depreciate from $1.60 to $1.40 per pound. Consider that the pound depreciation affects only the selling price, sales volume, and the prices of both locally sourced and imported inputs change following the pound depreciation. In Case 1. Albion Computes faces an elastic demand for its products. Thus, Albion can raise the selling price to 1,080 per unit, the combined unit variable cost will be 722. and the sales volume declined to 40,000 units. Compute the projected cash flow in dollars for Case 1 and operating losses/gains. Attach your work tot question. CASE 1 ITEMS SALES VARIABLE COST FIXED OVERHEAD COSTS DEPRECIATION NET PROFIT BEFORE TAX INCOME TAX (50%) PROFIT AFTER TAX ADD BACK DEPRECIATION OPERATING CASH FLOW IN POUND OPERATING CASH FLOW INS BASE 50,000,000 32.500.000 4,000,000 1.000.000 12,500,000 6.250.000 6,250,000 1.000.000 7.250,000 11,600,000