14 Soenen A/S is a fully owned Norwegian subsidiary of Mehta Montana Co. (MM), a U.S.-based corporation. The budgeted income statement of Soenen A/S for 20x3 follows. Soenen is expected to transfer its net cash flow to MM annually on December 31. Budget variances were immaterial. The exchange rate at the time of budget preparation was Norwegian krone (NKr)7.6 = $1. At the end of the year, the exchange rate was NKr8.0 = $1. Soenen A/S Budgeted Income Statement For the Year ending December 31, 20x3 Sales revenue NKr 24,000,000 Cost of sales (13,200,000) Gross margin 10,800,000 Operating expenses* (4,400,000) Income before taxes 6,400,000 Income tax (1,600,000) Net income NKr 4,800,000 *Indudes NKr940,000 depreciation expense. Required: (1) Compute the net cash flow in the Norwegian krone and in the U.S. dollar. (2) Explain the economic impact of the exchange rate change. (3) What can Soenen A/S do in the future to manage its risk exposure? 15 A sale for 200,000 francs was made by a French company to a Canadian company when the exchange rate was F4.0 = Can$1.00. The rate changed to F4.5 = Can$ 1.00 on the date payment was due. The transaction is denominated in francs. Required: (1) Did the seller face any transaction exposure? If the answer is yes, what was the amount? (2) Did the buyer have any transaction gain or loss? If the answer is yes, was it a gain or loss, and what was the amount? 16 U.S.-based Anderson Company engages in a number of foreign currency transactions that have resulted in the following balances: Cash: British pounds 800,000 Cash: Swiss francs 500,000 Accounts receivable: Swiss francs 3,200,000 Accounts receivable: British pounds 1,050,000 Accounts payable: Swiss francs 700,000 Accounts payable: Swedish krona 800,000 Notes payable: Swedish krona 200,000 Management forecasts the following exchange rate changes for the near future: The Swiss franc will weaken against the dollar by 5 percent. The British pound will strengthen relative to the dollar by 10 percent. The Swedish krona will strengthen against the dollar by 15 percent. Required: Develop a strategy for Andersons foreign currency. The strategy should maximize Andersons gain or minimize its loss, whatever the case