AT&T purchases its raw materials from Germany and sells its finished products to Japan.

Both exports and imports with terms “net 60 days” are denominated in foreign currencies

(the yen and the euro), but the levels of both revenues and costs are measured in the US dollar. AT&T has: sales = \($4,000;\) cost of goods sold = \($3,000;\) depreciation = \($400;

interest\) expenses = \($200,\) and tax rate = 50 percent. Assume that the euro and the Japanese yen appreciate by 10 percent before these credit transactions are settled.

(a) Use the above information to prepare an income statement such as table 20.2.

(b) Under what condition will a 10 percent appreciation in the yen raise AT&T’s profits?

(c) Under what condition will a 10 percent appreciation in the euro reduce AT&T’s profits?

(d) What will happen to AT&T’s profits if selling prices and costs are adjusted to reflect the 10 percent appreciation in both the yen and the euro?