Uwe Ronsenbeg Co. does business in the United States and in several countries in the European Union. In attempting to assess its economic exposure, it compiled the following information.

a. Uwe Co. U.S. sales are somewhat affected by the value of the Euro, because it faces competition from local companies and other exporters. It forecasts the U.S. sales based on the following exchange rate scenarios:

Sales from U.S. Business Sales from European Business

Exchange Rate of Euro (in thousands of units) (in thousands of units)

1 = $1.14 1150 400

1 = $1.155 1300 500

1 = $1.165 1400 600

1 = $1.175 1500 700

1 = $1.19 1650 800

b. Uwe Co sells its product for $10 in the US and 10 in Europe.

c. Its anticipated cost of materials is estimated at 60% of the total sales in the US and 60% of the sales in Europe.

d. Fixed operating expenses are estimated at $3,000,000.

e. Variable operating expenses are estimated at 10% of total sales (after including European sales, translated to a dollar amount).

f. Interest expense is estimated at $1 million on existing U.S. loans, and the company has no existing European loans.

Forecast net cash flows for Uwe Rosenberg Co. under each of the five exchange rate scenarios. Explain how Uwe Co projected net cash flows are affected by possible exchange rate movements. Explain how it can restructure its operations to reduce the sensitivity of its net cash flows to exchange rate movements without reducing its volume of business in Europe.