BF2207 Question 4 BreadTalk Group Ltd. is a Singaporean company that engages in bakery, food court, and restaurant businesses. It does business in Singapore and China. In attempting to assess its economic exposure, it compiled the following information: Its Singapore sales are somewhat affected by the value of the Chinese yuan (CNY) against the Singapore dollar (SGD) because it faces competition from Chinese fims. It forecasts the Singapore sales based on the following three exchange rate scenarios: Revenue from Singapore Business Probability Exchange Rate of CNY 200,000,000 SGD 0.150 SGD 20% 230,000,000 SGD 0.200 SGD 50% 250,000,000 SGD 0.250 SGD 30% Its CNY revenues on sales in China invoiced in CNY are expected to be 800 million CNY. It anticipated cost of materials is estimated at 180 million SGD from the purchase of Singapore materials and 100 million CNY from the purchase of China materials. Fixed operating expenses are estimated at 50 million SGD. Variable operating expenses are estimated at 20 percent of total sales (after including Chinese sales, translated to a SGD amount). Interest expense is estimated at 30 million SGD on existing SGD loans, and the company has no existing CNY loans. Forecast the net SGD cash flows for BreadTalk, accurate to the nearest dollar, under each of the three exchange rate scenarios. Explain how the forecasted net cash flows are affected by possible exchange rate movements. (a) (16 marks) Explain how BreadTalk can restructure its operations to reduce the sensitivity of its net cash flows to exchange rate movements without reducing its volume (b) of business in China. (6 marks) (TOTAL: 22 marks)