Monetary Economic Assignment

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QUESTION
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.

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