10 November, 05:44

# Consider a Swiss subsidiary (Swiss AS) of a US firm, Kendall Systems. The current exchange rate is \$0.80/SF. Swiss AS sells 6 million units, of which 3 million are sold at home and 3 million are exported selling at SF15/unit. It has fixed overhead costs of SF 6 million and direct costs (labor, raw material, etc.) of SF 10/unit. The firms has a straight line depreciation of SF 1 million each year and has a tax rate of 30%.As a result of sudden depreciation of SF from \$0.80/SF to \$0.75/\$, prices remain same at home (SF15 / unit) but there is an increase in export prices to SF20 / unit). Costs remain same.Find the Cash flows in \$ post-depreciation of SF?a.\$21.28 millionb.\$20.70 millionc.\$19.95 milliond.\$22.08 million

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1. 10 November, 07:34
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The Cash flows in \$ post-depreciation of SF is \$20.70 million. The right answer is b

Explanation:

To calculate the Cash flows in \$ post-depreciation of SF we would to have to make the following table:

Description Domestic sale Export sale Total

Selling revenue -

(3000000*15) 45,000,000 45,000,000

(3000000*20) 60,000,000 60,000,000

Variable cost

(3000000*10) (30,000,000) (30,000,000)

(3000000*10) (30,000,000) (30,000,000)

Contribution 45,000,000

Fixed cost (6,000,000)

Depreciation (1,000,000)

Profit before tax 38,000,000

Tax 30% (11,400,000)

Profit after tax 26,600,000