Intro

Cargill is a U.S. firms producing cattle feed. It imports soy beans from Brazil and also sell some products there. The company expects the following cash flows:

• U.S. sales of $300 million
• U.S. cost of goods sold of $60 million
• U.S. interest expenses of $30 million
• Selling, general and administrative expenses of $20 million
• Brazilian sales of R$160 million
• Brazilian cost of goods sold of R$770 million
• Brazilian interest expenses of R$10 million

The company expects the Brazilian real exchange rate to take on one of three possible values: $0.25 per real, $0.27 per real, or $0.29 per real.

Attempt 1/10 for 10 pts.

Part 1

What is the cash flow before taxes if the exchange rate turns out to be $0.29 per real (in $ million)?

Part 2

The company decided to restructure its business to reduce its exposure to the real exchange rate. In particular, the company decided to do the following:

• Increase sales efforts to reach Brazilian cattle farmers, increasing real sales to R$209 million, while also increasing selling expenses to $25.
• Buy more soy beans in America, reducing Brazilian cost of goods sold to R$750 million and increasing U.S. cost of goods sold to $65 million.
• Borrow more dollars to pay off some real debt, decreasing real interest expenses to R$5 milion and increasing dollar interest expenses to $31.35 million.

What is the cash flow before taxes if the exchange rate turns out to be $0.29 per real (in $ million)?