COOLs, Inc., is currently exporting roller COOLs to Thailand and importing certain components

needed to manufacture roller COOLs from that country. Under a fixed contractual agreement,

COOLs' primary customer in Thailand has committed itself to purchase 180,000 pairs of roller

COOLs annually at a fixed price of 4,594

Thai baht (THB) per pair. COOLs is importing rubber and plastic components from various

suppliers in

Thailand at a cost of approximately THB2,871 per pair, although the exact price (in baht) depends

on current market prices. COOLs imports materials sufficient to manufacture 72,000 pairs of roller

COOLs from

Thailand each year. The decision to import materials from Thailand was reached because rubber

and plastic components needed to manufacture COOLs' products are inexpensive, yet of high

quality, in Thailand.

COOLs has also conducted business with a Japanese supplier in the past. Although COOLs'

analysis indicates that the Japanese components are of a lower quality than the Thai components,

COOLs has occasionally imported components from Japan when the prices were low enough.

Currently, Ben Holt, COOLs' chief financial officer (CFO), is considering importing components

from Japan more frequently. Specifically, he would like to reduce COOLs' baht exposure by taking

advantage of the recently high correlation between the baht and the yen. Since COOLs has net

inflows denominated in baht and would have outflows denominated in yen, its net transaction

exposure would be reduced if these two currencies were highly correlated. If COOLs decides to

import components from Japan, it would probably import materials sufficient to manufacture 1,700

pairs of roller COOLs annually at a price of

7,440 per pair. Holt is also contemplating further expansion into foreign countries. Although he

would eventually like to establish a subsidiary or acquire an existing business overseas, his

immediate focus is on increasing COOLs' foreign sales. Holt's primary reason for this plan is that

the profit margin from COOLs' imports and exports exceeds

25 percent, while the profit margin from COOLs' domestic production is below 15 percent.

Consequently, he believes that further foreign expansion will be beneficial to the company's

future. Though COOLs' current exporting and importing practices have been profitable, Ben Holt

is contemplating extending COOLs' trade relationships to countries in different regions of the

world. One reason for this decision is that various Thai roller COOL manufacturerscchave recently

established subsidiaries in the United States. Furthermore, various Thai roller COOL

manufacturers have recently targeted the U.S. market by advertising their products over the

Internet. As a result of this increased competition from Thailand, COOLs is uncertain whether its

primary customer in Thailand will renew the current commitment to purchase a fixed number of

roller COOLs annually. The current agreement will terminate in 2 years. Another reason for

engaging in transactions with other, non-Asian, countries is that the Thai baht has depreciated

substantially recently, which has somewhat reduced COOLs' profit margins. The sale of roller

COOLs to other countries with more stable currencies may increase COOLs' profit margins. While

COOLs will continue exporting to Thailand under the current agreement for the next 2 years, it

may also export roller COOLs to Jogs, Ltd., a British retailer. Preliminary negotiations indicate

that Jogs would be willing to commit itself to purchase 200,000 pairs of "Speedos," COOLs'

primary product, for a fixed price of 80 per pair. Holt is aware that further expansion would

increase COOLs' exposure to exchange rate fluctuations, but he believes that COOLs can

supplement its profit margins by expanding. He is vaguely familiar with the different types of

exchange rate exposure but has asked you, a financial analyst at COOLs, Inc., to help him assess

how the contemplated changes would affect COOLs' financial position. Among other concerns,

Holt is aware that recent economic problems in Thailand have had an effect on Thailand and other

Asian countries. Whereas the correlation between Asian currencies such as the Japanese yen

and the Thai baht is generally not very high and very unstable, these recent problems have

increased the correlation among most Asian currencies. Conversely, the correlation between the

British pound and the Asian currencies is quite low. To aid you in your analysis, Holt has provided

you with the following data:

Currency Expected Rate Range of Possible Exchange rate

British Pound $1.6 $1.47 to 1.63

Japanese Yen $.0073 $0.0079 to 0.0087

Thai bath $0.03 $ 0.18 to 0.38

Holt has asked you to answer the following question:

Using a spreadsheet, conduct a consolidated net cash flow assessment of COOLs,

Inc., and estimate the range of net inflows and outflows for COOLs for the coming year.

Assume that COOLs enters into the agreement with Jogs, Ltd.