Suppose there is an American owned company in England that imports raw materials

Question

Suppose there is an American owned company in England that imports raw materials from the U.S. and then sells the final product to both British customers & US customers. Assume the following: Exchange rate is pounf 2/8 Total sales-units 1 million U.K. - 500,000 units at pound 10/unit US. - 500,000 units at $5/unit Tax rate is 50% Deprecation is pound 1 million 1yr Cost of Goods sold per unit Raw materials for the US (cost/unit) $3 British labor costs(cost/unit) pound 2 What are the cash flows from operations in dollars for the yr?

Explanation / Answer

Answer :-

Exchange rate pound = 2 / $

units sold in US = 500000 units

Selling price = $ 5

Raw material cost = $ 3

Depreciation cost = pound 1 million per year

= $ 1million * 2 exchange rate

= $ 2 million per year

Tax rate = 50%

Selling Price $ 5 Less:- Raw material $ 3 Total $ 2 Units 500000 Total Value $ 1 million Add :- Depreciation $ 2 million Total $ 3 million Less :- Tax @ 50% $ 1.5 million Cash Flow $ 1.5 million

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