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Thornton Industries is a U.S. firms with operations in France. The company expects the following...

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Finance

Thornton Industries is a U.S. firms with operations in France. The company expects the following cash flows:

  • U.S. sales of $110 million
  • U.S. cost of goods sold of $60 million
  • U.S. interest expenses of $15 million
  • Selling, general and administrative expenses of $30 million
  • French sales of 80 million
  • French cost of goods sold of 19 million
  • French interest expenses of 2 million

The company expects the euro exchange rate to be one of three possible values: $1.07 per euro, $1.17 per euro, or $1.27 per euro.

The company decided to restructure its business to reduce its exposure to the euro exchange rate. In particular, the company decided to do the following: Renegotiate some export contracts to invoice them in dollars instead of euros, increasing dollar sales to $148 million and decreasing euro sales to 48 million. Import more supplies from France, increasing French cost of goods sold to 39 million and lowering U.S. cost of goods sold to $37 million. Borrow more euros to pay off some dollar debt, increasing euro interest expenses to 11 milion and reducing dollar interest expenses to $4.47 million. What is the cash flow before taxes if the exchange rate turns out to be $1.27 per euro (in $ million)?

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