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Hi sir
May I know do you have answer for this question? Particularly on component cost from Germany for year 1 to year 4.
THank you.
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.Hi thank you so much.
i hope I’m getting it correctly. Could you help to comment whether I’m getting it right?Initially I don’t understand why are we inflate again with the euro inflation rate as we have inflated it under exchange rate (i.e. year 1 = 27.44 etc) with the purchasing power parity formula.
But what we inflate now is on the euro 1.5 mil component cost from Germany. The yearly component cost itself is require to increase in line with the inflation rate. Same as sales amount which the selling price require to inflate.
Hope I’m getting it correct.
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 🙂
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