22 Measuring economic exposure. Using the following cost and revenue information shown for DeKalb plc (UK) determine how the costs, revenue, and earnings items would be affected by three possible exchange rate scenarios for the New Zealand dollar

(NZ$): (1) NZ$ ¼ £0.40, (2) NZ$ ¼ £0.44, and

(3) NZ$ ¼ £0.48. (Assume UK sales will be unaffected by the exchange rate.) Assume that NZ$ earnings will be remitted to the UK parent at the end of the period.

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Revenue and cost estimates for DeKalb plc UK business m New Zealand business NZ$m Sales Cost of goods sold Gross profit 800 800 500 100 300 700 Operating expenses Earnings before and taxes interest 300 0 0 700 Interest expense Earnings before taxes 100 0 -100 700