MINI CASE ECONOMIC EXPOSURE OF ALBION COMPUTERS PLC

MINI CASE: ECONOMIC EXPOSURE OF ALBION COMPUTERS PLC

 

Consider Case 3 of Albion Computers PLC discussed in the chapter. Now, assume that the pound  is expected to depreciate to $1.50 from the current  level of $1.60 per pound. This implies that the pound  cost of the imported part, i.e., Intel’s microprocessors, is £341 (=$512/$1.50). Other variables, such as the unit sales volume and the U.K.  inflation rate, remain the same as in Case 3.

(a) Compute the projected annual cash flow in dollars.

(b) Compute the projected operating gains/losses over the four-year horizon as the discounted present value of  change in cash flows, which is  due to the pound depreciation, from the benchmark case presented in  Exhibit 12.4.

 

(c) What actions, if any, can Albion take to mitigate the projected operating losses due to the pound  depreciation?