In the wake of the North American Free Trade Agreement, the firm All-American Exports, Inc. has begun

Question:

In the wake of the North American Free Trade Agreement, the firm All-American Exports, Inc. has begun exporting baseball caps and gloves to Mexico. Suppose that All-American is subject to a tax of 30 percent when it earns profits less than or equal to usd 10 million and 40 percent on the part of profits that exceeds usd 10 million. The table below shows the company's profits in usd under three scenarios, when the firm has hedged its income and when it has left its income unhedged. The probability of each level of the is also given.

(a) Compute the taxes that All-American must pay under each scenario.
(b) What are All-American's expected taxes when it hedges its income?
(c) What are All-American's expected taxes when it does not hedge its income?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...