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International Trade and Inflation

Consider a scenario where you are an entrepreneur planning to expand your production of kitchen gadgets. You need to pay back a loan of $5,000,000 over five years. The interest rate is 5% and your other operational costs are $10,000,000 per annum. The first year after the investment your sale is 95,000 boxes of kitchen gadgets and your revenue is $9,500,000. Assuming that your sales volume remains unchanged, prepare a report on the following:

* The rate of annual inflation that will assure that you break even and will be able to pay off your loan on time.

* Assume that you now earn $142 for each box of kitchen gadgets. In addition assume that the economy has entered a period of deflation. What is the rate of deflation at which falling prices will make the venture unprofitable?

* Your kitchen gadget firm also caters to the export market. Some of the markets you export to experience inflation while others do not. List at least two advantages of exporting to countries going

Solution Summary

What is the rate of deflation at which falling prices will make the venture unprofitable?

$2.19