Intro

Thornton Industries is a U.S. firms with operations in France. The company expects the following cash flows:

• U.S. sales of $150 million
• U.S. cost of goods sold of $60 million
• U.S. interest expenses of $15 million
• Selling, general and administrative expenses of $30 million
• French sales of 80 million
• French cost of goods sold of 15 million
• French interest expenses of 2 million

The company expects the euro exchange rate to be one of three possible values: $1 per euro, $1.1 per euro, or $1.2 per euro.

Attempt 1/10 for 10 pts.

Part 1

What is the cash flow before taxes if the exchange rate turns out to be $1.2 per euro (in $ million)?

Part 2

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

• Renegotiate some export contracts to invoice them in dollars instead of euros, increasing dollar sales to $187 million and decreasing euro sales to 46 million.
• Import more supplies from France, increasing French cost of goods sold to 35 million and lowering U.S. cost of goods sold to $38 million.
• Borrow more euros to pay off some dollar debt, increasing euro interest expenses to 11 milion and reducing dollar interest expenses to $5.1 million.

What is the cash flow before taxes if the exchange rate turns out to be $1.2 per euro (in $ million)?