Reference no: EM131708181

Question: Hurte-Paroxysm Products, Inc. (B). Assume the same facts as in Hurte-Paroxysm Products, Inc. (A). HP also believes that if it maintains the same price in Brazilian reais as a permanent policy, volume will increase at 10% per annum for six years, costs will not change. At the end of six years, HP's patent expires and it will no longer export to Brazil. After the reais is devalued to R$4.00/US$, no further devaluation is expected. If HP raises the price in reais so as to maintain its dollar price, volume will increase at only 4% per annum for six years, starting from the lower initial base of 40,000 units. Again, dollar costs will not change, and at the end of six years, HP will stop exporting to Brazil. HP's weighted average cost of capital is 12%. Given these considerations, what do you recommend for HP's pricing policy? Justify your recommendation.