Problem 2 Intro Thornton Industries is a U.S. firms with operations in France. The company expects...
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Problem 2 Intro Thornton Industries is a U.S. firms with operations in France. The company expects the following cash flows: • U.S. sales of $150 million • U.S. cost of goods sold of $60 million • U.S. interest expenses of $15 million Selling, general and administrative expenses of $30 million • French sales of €80 million • French cost of goods sold of €17 million • French interest expenses of €2 million The company expects the euro exchange rate to be one of three possible values: $0.94 per euro, $1.04 per euro, or $1.14 per euro. Part 1 Attempt 1/10 for 10 pts. What is the cash flow before taxes if the exchange rate turns out to be $1.14 per euro (in $ million)? 0+ decimals Submit Part 2 What could the company do to reduce its economic exposure to the euro? Check all that apply: Hedge its euro transactions Increase imports from France Restructure debt to increase debt payments in euros Increase sales in France Submit Attempt 1/5 for 10 pts. Part 3 Attempt 1/10 for 10 pts. The company decided to restructure its business to reduce its exposure to the euro exchange rate. In particular, the company decided to do the following: • Renegotiate some export contracts to invoice them in dollars instead of euros, increasing dollar sales to $181 million and decreasing euro sales to €50 million. • Import more supplies from France, increasing French cost of goods sold to €37 million and lowering U.S. cost of goods sold to $39 million. • Borrow more euros to pay off some dollar debt, increasing euro interest expenses to €10 milion and reducing dollar interest expenses to $6.68 million. What is the cash flow before taxes if the exchange rate turns out to be $1.14 per euro (in $ million)? 0+ decimals Submit Problem 2 Intro Thornton Industries is a U.S. firms with operations in France. The company expects the following cash flows: • U.S. sales of $150 million • U.S. cost of goods sold of $60 million • U.S. interest expenses of $15 million Selling, general and administrative expenses of $30 million • French sales of €80 million • French cost of goods sold of €17 million • French interest expenses of €2 million The company expects the euro exchange rate to be one of three possible values: $0.94 per euro, $1.04 per euro, or $1.14 per euro. Part 1 Attempt 1/10 for 10 pts. What is the cash flow before taxes if the exchange rate turns out to be $1.14 per euro (in $ million)? 0+ decimals Submit Part 2 What could the company do to reduce its economic exposure to the euro? Check all that apply: Hedge its euro transactions Increase imports from France Restructure debt to increase debt payments in euros Increase sales in France Submit Attempt 1/5 for 10 pts. Part 3 Attempt 1/10 for 10 pts. The company decided to restructure its business to reduce its exposure to the euro exchange rate. In particular, the company decided to do the following: • Renegotiate some export contracts to invoice them in dollars instead of euros, increasing dollar sales to $181 million and decreasing euro sales to €50 million. • Import more supplies from France, increasing French cost of goods sold to €37 million and lowering U.S. cost of goods sold to $39 million. • Borrow more euros to pay off some dollar debt, increasing euro interest expenses to €10 milion and reducing dollar interest expenses to $6.68 million. What is the cash flow before taxes if the exchange rate turns out to be $1.14 per euro (in $ million)? 0+ decimals Submit
Expert Answer:
Answer rating: 100% (QA)
ANSWER Part 1 To calculate the cash flow before taxes we need to convert the French sales and expenses into dollars using the given exchange rate of 114 per euro French sales in dollars French sales 8... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-1119048541
11th Canadian edition Volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy
Posted Date:
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