Measuring Economic Exposure Using the cost and revenue information shown for DeKalb, Inc., on the next page, determine how the costs, revenue, and cash flow items would be affected by three possible exchange rate scenarios for the New Zealand dollar(NZ$): (1) NZ$ = $.50, (2) NZ$ = $.55, and

(3) NZ$ = $.60. (Assume U.S. sales will be unaffected by the exchange rate.) Assume that NZ$ earnings will be remitted to the U.S. parent at the end of the period. Ignore possible tax effects.

REVENUE AND COST ESTIMATES: DEKALB, INC.

(IN MILLIONS OF U.S. DOLLARS AND NEW ZEALAND DOLLARS)

U.S. BUSINESS NEW ZEALAND BUSINESS Sales $800 NZ$800 Cost of materials 500 100 Operating Expenses 300 0 Interest expense 100 0 Cash flow –$100 NZ$700