Ouestion 4 BreadTalk Group Ltd. is a Singaporean company that engages in bakery, food court, and restaurant businesses. It does business in Singapore and China. In attempting to assess its economic exposure, it compiled the following information: Its Singapore sales are somewhat affected by the value of the Chinese yuan (CNY) against the Singapore dollar (SGD) because it faces competition from Chinese firms. It forecasts the Singapore sales based on the following three exchange rate scenarios : Revenue from Singapore Business Exchange Rate Of CNY Probability SGD SGD SGD 0.150 SGD 0.200 SGD 0.250 SGD 50% 30% Its CNY revenues on sales in China invoiced in CNY are expected to be goo million CNY. It anticipated cost of materials is estimated at 180 million SGD from the purchase of Singapore materials and 100 million CNY from the purchase of China materials. Fixed operating expenses are estimated at 50 million SGD. Variable operating expenses are estimated at 20 percent of total sales (after including Chinese sales, translated to a SGD amount). Interest expense is estimated at 30 million SGD on existing SGD loans, and the company has no existing CNY loans. Forecast the net SGD cash flows for BreadTalk, accurate to the nearest dollar, (a) under each of the three exchange rate scenarios. Explain how the forecasted net cash flows are affected by possible exchange rate movements. (16 marks) Explain how BreadTalk can restructure its operations to reduce the sensitivity (b) of its net cash flows to exchange rate movements without reducing its volume of business in China. (6 marks) (TOTAL: 22 marks)