Econ assignment 3

ECON24 Monetary Economics Assignment Part 3

ECON24 Monetary Economics Assignment Part 3

Economic Exposure

Instruction:

· This is ECON24 assignment part 3, comprising 10% weight of total mark.

· Please refer to video 22&23 for your reference.

· Total mark for this quiz is 25, and that will be scale down to 10 marks in your final result.

· Submission should be excel worksheet format.

· Late submission will apply penalty: 1 mark off each day (out of 10)

I. Question 1 (20 marks): Economic Exposure

Now, turning your attention to Billabong, a sportswear firm in Australia, has a subsidiary in the US that manufactures and sells clothing and accessories in the US.

( Main input is priced in $AUD (A$ 50/unit) All other costs are in USD$ (Fixed cost=U$ 2 million, Variable cost= U$ 30/unit). Depreciation = U$ 0.5 mil S0 = A$ 1.25/U$ Expects to sell 50,000 clothes this year at U$ 150 each. Tax rate = 30%; assume tax credits are available for immediate use if losses occur )

Please design an excel spreadsheet to achieve the goals outlined below. (Hint: Use Goal Seek and/or Solver Functions in Excel.)

You are required to show all your workings in Excel:

a) What are the operating cash flows in A$ and U$? (5 marks)

b) How many units do Billabong need to sell to break-even in operating cash flows in $ AUD?

(5 marks)

Ignore part (a) and part (b) above for the following questions, and assume that the normal sales are 40,000 Units for the rest of the questions.

c) What are your operating cash flows in A$ now? (5 marks)

d) If the spot rate increases to A$ 2.50 /U$, Billabong would like to pass all benefits to its clients by reducing the selling price. What would be the new selling price that would enable Billabong to maintain its profit (operating cash flows in $AUD) in Part (c), and which would pass all benefits to its client at the same time? (5 marks)

II. Presentation of your work (5 marks penalty if poor presentation):

· Formulas for the calculations in Excel should have cell references wherever possible. If you have computed a number incorrectly and just typed that number into the spreadsheet (or typed a formula using numbers when cell references could have been used), you will not receive partial credit for any portion of your computation that is correct.

Final Submission:

Individuals should submit the entire assignment by attaching one files:

· One Excel file, (Name the files “ECON24_Assginment part 3_Surname Fistname.xlsx”

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