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Suppose that Salem Co , a U . S . - based MNC that both purchases supplies from Canada and sells exports in Canada, is
Suppose that Salem Co a USbased MNC that both purchases supplies from Canada and sells exports in Canada, is seeking to measure the economic
exposure of its cash flows. Salem wishes to analyze how its cash flows might change under different exchange rates for the Canadian dollar the only
foreign currency in which it deals
Salem estimates it's cash flows from both the US in dollars, and Canada, in Canadian dollars. These figures are summarized in the following table.
Salem believes that the value of the Canadian dollar will be $$ or $ and seeks to analyze its cash flows under each of these scenarios.
The following table shows Salem's cash flows under each of these exchange rates.For each exchange rate scenario, fill in rows and Finally, fill in the last row for net cash flows in US dollars for each
exchange rate.
Exchange Rate Scenario
$$
Millions
Exchange Rate Scenario
C$$
Millions
Exchange Rate Scenario
C$$
Millions
Sales
US Sales
Canadian Sales
$$
$$
$$
Total Sales in US $
$
$
$
Cost of Materials and Operating Expenses
US Cost of Materials
$
$
Canadian Cost of Materials
$
$$
$$
Total Cost of Materials in US $
$
$
Operating Expenses
$
$
$
Interest Expense
US Interest Expense
Canadian Interest Expense
$$
Total Interest Expenses in US
Cash Flows in US$ before Taxes
$
$
$
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