Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Cahaya Co. does business in Malaysia and New Zealand. In attempting to assess its operating exposure, it compiled the following information: Cahayas Malaysia sales are

Cahaya Co. does business in Malaysia and New Zealand. In attempting to assess its

operating exposure, it compiled the following information:

Cahayas Malaysia sales are somewhat affected by the value of the New Zealand

dollar (NZ$), because it faces competition from New Zealand exporters. It forecasts

the Malaysia sales based on the following three exchange rate scenarios:

Exchange Rate of NZ$ Revenue from Malaysian Business (in millions)

NZ$ = MYR 2.8914 100

NZ$ = MYR 3.0119 105

NZ$ = MYR 3.1324 110

Its New Zealand dollar revenues on sales to New Zealand invoiced in New Zealand

dollars are expected to be NZ$600 million.

Its anticipated cost of materials is estimated at MYR 200 million from the purchase

of Malaysia materials and NZ$100 million from the purchase of New Zealand

materials.

Fixed operating expenses are estimated at MYR 30 million.

Variable operating expenses are estimated at 20 percent of total sales (after

including New Zealand sales, translated to MYR amount).

Interest expense is estimated at MYR 20 million on existing Malaysia loans, and

the company has no existing New Zealand loans.

a) Forecast total net cash flows for Cahaya Co. (Malaysias and New Zealands)

under each of the three exchange rate scenarios.

b) Explain how Cahaya's projected net cash flows are affected by possible

exchange rate movements.

c) Explain 2 proactive methods on how it can restructure its operations to reduce

the sensitivity of its net cash flows to exchange rate movements without

reducing its volume of business in New Zealand.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Basics Of Quality Auditing

Authors: Ronald Blank

1st Edition

1138438863, 9781138438866

More Books

Students also viewed these Accounting questions