Whitewater Co.is a U.S.company with sales to Canada amounting to C$8 million. Its cost of goods sold attributable to the purchase of Canadian goods is C$6 million. Its interest expense on Canadian loans is C$4 million. Given these exact figures above,the dollar value of Whitewater's "earnings before interest and taxes" would _______ if the Canadian dollar appreciates;the dollar value of Whitewater's "earnings before taxes" would _______ if the Canadian dollar appreciates.

Question

Whitewater Co.is a U.S.company with sales to Canada amounting to C$8 million.  Its cost of goods sold attributable to the purchase of Canadian goods is C$6 million.  Its interest expense on Canadian loans is C$4 million.  Given these exact figures above,the dollar value of Whitewater's "earnings before interest and taxes" would _______ if the Canadian dollar appreciates;the dollar value of Whitewater's "earnings before taxes" would _______ if the Canadian dollar appreciates.

Quizplus · Accepted Answer

If the Canadian dollar appreciates, it means that one U.S dollar can purchase less Canadian dollar. Therefore, the sales revenue of C$8 million will be worth fewer U.S. dollars than before. Hence, the dollar value of Whitewater's earnings before interest and taxes would decrease. At the same time, the cost of goods sold of C$6 million will also be worth fewer U.S. dollars than before, resulting in a smaller deduction from revenues. Therefore, the dollar value of earnings before taxes would increase.