This spring, I asked students in one of my business courses the following questions on the final.
On May 7th 1998, the German automobile company Daimler-Benz--maker of the world-famous luxury car brand Mercedes-Benz—purchased United States-based Chrysler Corporation for $36 billion. On May 14th, 2007 DaimlerChrysler announced it will sell its U.S. brand Chrysler to Cerberus Capital Management, a private equity investment firm. Daimler estimates that it will end up paying $650 million to close the deal. (In other words, Daimler was paying Cerberus $650 million to take Chrysler off its hands.) On April 30, 2009, Chrysler filed for Chapter 11 bankruptcy protection from its current creditors.
Q: Assume that on May 7, 1998 the exchange rate was €1= US $1.14. Based on this rate what price did Daimler pay, in Euros, to buy Chrysler?
Six out of eighteen students could not calculate the price.1. It is Year 2000. Assume that the PPP exchange rate in 2000 was US $1 = Indian Rs. 50. An accounting grad just out of school was hired by GE in Chicago and was paid $50,000. GE in India hired a similar accountant in year 2000 for Rs.15,00,000. Use the PPP rate to find out whether the accountant in Chicago or the one in India had more purchasing power. (Ignore taxes).
xczAlmost all students asked me if there was a typo in the question, as the commas were incorrectly placed in the Rs 15,00,000 number. Students had forgotten that we had covered this in class just a few weeks earlier, in an extensive discussion of cultural differences. Even after telling the students that the number was correct, seven out of eighteen students could not calculate PPP adjusted salaries and answer the question.
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