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Ulrich

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Ulrich, a German automotive manufacturer, operates factories in four Asian countries. The company is evaluating plans to streamline its regional operations by closing one of these facilities. They have engaged us to provide strategic guidance on which country to exit, considering factors such as projected demand and production costs.

Based on the provided data, what is the lowest expected annual profit across the four countries? 

Cost, Price, and Demand Data for Vehicle Manufacturing by Country

€ million

To find the lowest expected profit, we need to calculate the expected profit in all four countries. To do so, we use the formula:

Profit = Revenues - Costs;  where

Revenues = (Average sales price per car * Annual demand); and

Costs = Fixed costs + (Variable costs per car * Annual demand)

The calculations for each country are as follows:

Profit for S. Korea = Revenues - Costs =

= (€28,000 * 120,000) - (€175M + (€18,000 * 120,000)) = €3,360M - €2,335M = €1,025M

Profit for Vietnam = Revenues - Costs =

= (€23,000 * 80,000) - (€160M + (€15,000 * 80,000)) = €1,840M - €1,360M = €480M

Profit for Thailand = Revenues - Costs =

= (€26,000 * 100,000) - (€165M + (€16,000 * 100,000)) = €2,600M - €1,765M = €835M

Profit for Malaysia = Revenues - Costs =

= (€27,000 * 90,000) - (€155M + (€17,000 * 90,000)) = €2,430M - €1,685M = €745M

Based on these calculations, Vietnam is the country with the lowest expected profit, with an amount of €480M.

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