Porsche plans on introducing a new four-door luxury automobile in 2009 called th
ID: 2651627 • Letter: P
Question
Porsche plans on introducing a new four-door luxury automobile in 2009 called the Panamera. Although pricing is not yet set, some automotive analysts believe the basic production model will be sold in Europe at a price of €120,000. At this price they believed the company stood to earn a 20% margin on each car.
If the spot rate in 2009 was $1.44/€, what would be its projected price in the United States?
If the price in the U.S. market was set at $158,000, and the spot exchange rate averaged $1.4240/€, what would be the margin on the Panamera?
Using the same basic data as in the previous problem, consider the following. If the dollar continues to fall throughout the year, and the spot rate in 2009 averages $1.6250/€, but the U.S. dollar price is held constant since its introduction in January 2009 at $158,000, what would be the profit margin on each car sold in the U.S.?
Explanation / Answer
Porsche plans on introducing a new four-door luxury automobile in 2009 called the Panamera. Although pricing is not yet set, some automotive analysts believe the basic production model will be sold in Europe at a price of €120,000. At this price they believed the company stood to earn a 20% margin on each car.
If the spot rate in 2009 was $1.44/€, what would be its projected price in the United States?
Projected price in the United States = 120000*1.44
Projected price in the United States = $ 172800
If the price in the U.S. market was set at $158,000, and the spot exchange rate averaged $1.4240/€, what would be the margin on the Panamera?
Cost of the Car = 120000 - 20%*120000 = € 96000
Cost of Car in $ = 96000*1.4240 = $ 136,704
Sale Price = $ 158000
Marginon the Panamera (in $) = Sale Price - Cost of Car
Margin on the Panamera (in $) = 158000 - 136704
Margin on the Panamera (in $) = $ 21,296
Margin on the Panamera (in %) = Margin on the Panamera (in $)/Sale Price
Margin on the Panamera (in %) = 21296/158000
Margin on the Panamera (in %) = 13.48%
Using the same basic data as in the previous problem, consider the following. If the dollar continues to fall throughout the year, and the spot rate in 2009 averages $1.6250/€, but the U.S. dollar price is held constant since its introduction in January 2009 at $158,000, what would be the profit margin on each car sold in the U.S.?
Cost of the Car = 120000 - 20%*120000 = € 96000
Cost of Car in $ = 96000*1.6250 = $ 156000
Sale Price = $ 158000
Marginon the Panamera (in $) = Sale Price - Cost of Car
Margin on the Panamera (in $) = 158000 - 156000
Margin on the Panamera (in $) = $ 2000
Margin on the Panamera (in %) = Margin on the Panamera (in $)/Sale Price
Margin on the Panamera (in %) = 2000/158000
Margin on the Panamera (in %) = 1.27%