Explain with an example an operational exchange rate hedge or natural hedge. In your example, assume a US-owned company with its operation and sales in the United Kingdom, material expenditures in US dollars, and with the following annual cash flows:

- Revenue \(=£ 40\) million

- Operating cost \(=£ 4\) million

- Crude oil expenditures \(=\$ 32\) million

- Interest expense on \(\$ 100\) million debt \(=(0.08)(\$ 100,000,000)=\$ 8\) million

- Effective tax rate \(=0.4\)

Evaluate the company's foreign currency exposure by evaluating the company's EAT to a change in the exchange rate from \(\$1.50 / £\) to \(\$1.25 / £\). Explain what would happen to the company's foreign currency exposure if it swapped its \(\$ 100\) million 8\% debt for \(£66.67\) million debt at 8\% (BP interests \(=(0.08)(£66.67\) million BP \()=£5.33333\) million \().\)