Using the following cost and revenue information shown for BlueSky, Inc., determine how the costs, revenue, and cash flow would be affected by three possible exchange rate scenarios for the New Zealand dollar (NZ$): (1) NZ$ = $.70, (2) NZ$ = $.65, and (3) NZ$ = $.60. (Assume U.S. sales will be unaffected by the exchange rate.) Assume that NZ$ earnings will be remitted to the U.S. parent at the end of the period. Ignore possible tax effects. Briefly comment on the nature of the companys exchange rate risk exposure (8 points) Forecasted Net Cash Flows: BlueSky Inc. (in millions of U.S. dollars and New Zealand dollars)

U.S. Business New Zealand Business Sales $600 NZ$400 Cost of Materials 240 100 Operating Expenses 130 0 Interest Expense 80 50 Cash Flow $150 NZ$250