# Problem 3

## Problem 3

• Submitted By: sandyi
• Date Submitted: 11/05/2014 2:42 AM
• Words: 1418
• Page: 6

Problem 3.1 Porsche Pricing (A)

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.

Assumptions   Values
Porsche Panamera price in Europe in 2009 (€)   € 120,000.00
Expected margin on the Panamera on European sales   20.0%
Spot exchange rate in 2009 (\$/€)   1.4400

a. If the spot rate in 2009 was \$1.4400/€, what would be its projected price in the United States?

Price in euros in Europe x spot rate (\$/€)   \$172,800

b. If the price in the US market was set at \$158,000, and the spot exchange rate averaged \$1.4240/€, what would the margin on the Panamera be?

Price in US market   \$158,000
spot exchange rate (\$/€)   1.4240
Effective price in euros (P\$ ÷ \$/€)   € 110,955.06

If Porsche was going to earn a 20% margin on Panamera sales in Europe, the cost of the Panamera had to be 80% of of price.

Price   € 120,000.00
Cost (.8 x price)   -€ 96,000.00
Margin (.2 x price)   € 24,000.00

Now, if the effective price earned on US sales was:   € 110,955.06
and the cost was as calculated above   -€ 96,000.00
Margin would then be   € 14,955.06
or in percentage   12.46%

Conclusions: tis would be a substantially smaller margin that that earned in Europe

Concluzii: acest lucru ar fi o marjă substanțial mai mici, care care a câștigat în EuropaProblem 3.2 Porsche Pricing (B)

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...