Question Details

Explain how it can restructure its operations 



1. Managing Economic Exposure. St. Paul Co. does business in the United States and New
Zealand. In attempting to assess its economic exposure, it compiled the following information.
a. St. Paul- U.S. sales are somewhat affected by the value of the New Zealand dollar (NZ$),
because it faces competition from New Zealand exporters. It forecasts the U.S. sales based on
the following three exchange rate scenarios:
Revenue from U.S. Business
Exchange Rate of NZ$ (in millions)
NZ$ = $.48 $100
NZ$ = .50 105
NZ$ = .54 110
b. Its New Zealand dollar revenues on sales to New Zealand invoiced in New Zealand dollars are
expected to be NZ$600 million.
c. Its anticipated cost of materials is estimated at $200 million from the purchase of U.S.
materials and NZ$100 million from the purchase of New Zealand materials.
d. Fixed operating expenses are estimated at $30 million.
e. Variable operating expenses are estimated at 20 percent of total sales (after including New
Zealand sales, translated to a dollar amount).
f. Interest expense is estimated at $20 million on existing U.S. loans, and the company has no
existing New Zealand loans.
Forecast net cash flows for St. Paul Co. under each of the three exchange rate scenarios. Explain
how St. Paul- projected net cash flows are affected by possible exchange rate movements.
Explain how it can restructure its operations to reduce the sensitivity of its net cash flows to
exchange rate movements without reducing its volume of business in New Zealand.



Business Management Assignment Help, Business Management Homework help, Business Management Study Help, Business Management Course Help