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Calculation steps must be shown in the answer!!! Cahaya Co. does business in Malaysia and New Zealand. In attempting to assess its operating exposure, it
Calculation steps must be shown in the answer!!!
Cahaya Co. does business in Malaysia and New Zealand. In attempting to assess its operating exposure, it compiled the following information: Cahaya's Malaysia sales are somewhat affected by the value of the New Zealand dollar (NZS), 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 NZS = 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. (Malaysia's and New Zealand's) 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 ZealandStep by Step Solution
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