Question

Assume that Live Co. has expected cash flows of $200,000 from domestic operations, 200,000 Swiss francs from Swiss operations, and 150,000 euros from Italian operations at the end of the year. The Swiss franc's value and the euro's value are expected to be $.83 and $1.29, respectively, at the end of this year. What are the expected dollar cash flows of Live Co?

1) $200,000
2) $559,500
3) $582,500
4) $393,500

Answer 1

The expected dollar cash flows of Live Co. are calculated by converting its Swiss franc and euro cash flows into dollars using the provided exchange rates and summing them up with the domestic cash flows. The total expected dollar cash flows are $559,500.

Step-by-step explanation:

To determine the expected dollar cash flows of Live Co. from its international operations, we need to convert the foreign currencies to U.S. dollars using the given exchange rates. The company has expected cash flows of 200,000 Swiss francs and 150,000 euros from its Swiss and Italian operations respectively. Using the exchange rates provided, the Swiss francs will be converted at a rate of $0.83 per Swiss franc and the euros at a rate of $1.29 per euro.

The calculation is as follows:

1. Swiss operations: 200,000 Swiss francs * $0.83/Swiss franc = $166,000
2. Italian operations: 150,000 euros * $1.29/euro = $193,500

Now, we add the domestic cash flows to the converted international cash flows:

• Domestic cash flows: $200,000
• Converted Swiss cash flows: $166,000
• Converted Italian cash flows: $193,500

Summing these figures gives us the total expected dollar cash flows:

$200,000 (domestic) + $166,000 (Swiss) + $193,500 (Italian) = $559,500.

Therefore, the expected dollar cash flows of Live Co. are $559,500.