Smith Co. operates business in the United States and New Zealand.In attempting to assess its economic exposure, it compiled the following information.

i.Smith's U.S. sales are slightly influenced by the New Zealand dollar (NZ$) value, due to confronts rivalry from New Zealand exporters.It estimates the U.S. sales based on the following three exchange rate scenarios:

Revenue from U.S. Business

ExchangeRateofNZ$(inmillions)

NZ$ =$.48$100

NZ$ =.50105

NZ$ =.54110

ii.Revenues for Smith Co. in New Zealand dollars are projected to be NZ$600 million.

iii.Cost of goods sold is projected at $60 million from the U.S. materials purchase and NZ$100 million from the New Zealand materials purchase.

iv.Fixed operating expenses are valued at $30 million.

v.Variable operating expenses are projected at 20 percent of total sales (after including New Zealand sales, translated to a dollar amount).

vi.Interest expense is projected at $20 million on prevailing U.S. loans, and the company has no existing New Zealand loans.

Questions:

a)Generate a forecasted income statement for Smith Co. under each of the three exchange rate scenarios.(9 marks)

Also answer the following questions based onthe rubric.(16 marks)

b)Discuss how Smith's projected earnings before taxes are influenced by the vitalof exchange rate forecasting. Justify your viewpoints.

Describe how Smith Co. can restructure its operations to minimize the earnings sensitivity to the degree of exchange rate movements without reducing its business volume in New Zealand.