Scenario A. The Pacific Corporation based in Seattle; Washington has cash flows generated from domestic sales of
Question:
Scenario A.The Pacific Corporation based in Seattle; Washington has cash flows generated from domestic sales of $1,250,000. It is expected to also have inflows of 510,000 Swiss francs due to exports to Switzerland. Pacific also had cash outflows of 750,000 francs for repairs on Pacific’s Building in Switzerland. Pacific also negotiated a forward contract with Bank of America to lock in the Swiss France at a rate of $1.13.
Calculate the expected dollar cash flows of Pacific Corporation at the end of 2022.
Scenario B.If the Pacific Corporation based in Seattle; Washington has cash flows generated from domestic sales of $1,000,000. It is expected to also have inflows of 700,000 Swiss francs due to exports to Switzerland. Pacific also had cash outflows of 1,800,000 francs for building a new Pacific Office headquarters in Switzerland. Pacific was not able to negotiate the forward contract with Bank of America. On December 31, 2022; the current exchange rate was $1.08. Calculate the expected dollar cash flows of Pacific Corporation at the end of 2022. Is the valuation of the total cash flows of Pacific Corporation more uncertain or less uncertain in comparison to Scenario A? Explain your reason.