Dec 2003 Avto co

I do have an answer, and I assume that you do also 🙂

(If you do not then I cannot post an answer here because it would be breaking the ACCA copyright. Anyway, you should not be attempting questions for which you do not have an answer – it is pointless. You should be using a Revision Kit from one of the ACCA approved publishers – they have answers to all their questions 🙂 )

Assuming that you do have an answer, then with regard to the component cost, then for the local components in the first year it is 50,000 units x 1,800 = 90M TF. In later years it inflates at the Terranian inflation rates.
For components from Germany, then in the first year it is 50,000 units x 30 = 1.5M euros. The exchange rate in 1 years time is 27.44 TF/Euro, and therefore this converts to 1.5M x 27.44 = 41M TF. In later years the Euro amount will inflate at the Euro inflation rate, and then is converted at the future exchange rates.

But they are two separate things.

The cost is inflated because the question says that the cost will inflate.

Completely separately, we need to convert at whatever the spot rate is. The only way we can attempt to forecast the future spot rate is to use the purchasing power parity formula.

Otherwise what you say is correct 🙂