Measuring economic exposure. Using the following cost and revenue information shown for DeKalb plc (UK) determine how the costs, revenue, and earnings items would be affected by three possible exchange rate scenarios for the New Zealand dollar (NZ$): (1) NZ$ ¼ £0.40, (2) NZ$ ¼ £0.44, and (3) NZ$ ¼ £0.48. (Assume UK sales will be unaf- fected by the exchange rate.) Assume that NZ$ earn- ings will be remitted to the UK parent at the end of the period.
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Revenue and cost estimates for DeKalb plc
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UK business £m
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New Zealand business NZ$m
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Sales
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800
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800
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Cost of goods sold
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500
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100
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Gross profit
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300
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700
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Operating expenses
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300
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0
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Earnings before and taxes interest
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0
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700
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Interest expense
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100
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0
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Earnings before taxes
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-100
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700
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