Question
In: Accounting
Cowdy Corporation expects that it will sell goods to a foreign customer at a price of...
Cowdy Corporation expects that it will sell goods to a foreign customer at a price of 1 million lire on March 15, Year 2. To hedge this forecasted transaction, a three-month put option to sell 1 million lire is acquired on December 15, Year 1. It selects a strike price of $0.15 per lire, paying a premium of $0.005 per unit, when the spot rate is $0.15. The spot rate decrease to $0.14 at December 31, Year 1, causing the fair value of the option to increase to $11,000. By March 15, Year 2, when the goods are delivered and payment is received from the customer, the spot rate has fallen to $0.13, resulting in a fair value for the option of $20,000.
Required:
- What is the overall impact on net income in Year 1?
- What is the overall impact on net income in Year 2?
Solutions
ekkarill92 answered 1 year agoRelated Solutions
On June 1, Alexander Corporation sold goods to a foreign customer at a price of 1,110,000...
On June 1, Alexander
Corporation sold goods to a foreign customer at a price of
1,110,000 pesos and will receive payment in three months on
September 1. On June 1, Alexander acquired an option to sell
1,110,000 pesos in three months at a strike price of $0.055.
Relevant exchange rates and option premiums for the peso are as
follows:
Date
Spot Rate
Put Option Premium
for September 1
(strike price $0.055)
June 1
$
0.055
$
0.0021
June 30
0.059...
On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a...
On June 1, Maxwell Corporation (a U.S.-based company) sold goods
to a foreign customer at a price of 1,140,000 pesos and will
receive payment in three months on September 1. On June 1, Maxwell
acquired an option to sell 1,140,000 pesos in three months at a
strike price of $0.080. The time value of the option is excluded
from the assessment of hedge effectiveness, and the change in time
value is recognized in net income over the life of the...
A Manufacturing is producing $4,000,000 worth of goods this year and expects to sell $4,100,000. The...
A Manufacturing is producing $4,000,000 worth of goods this year
and expects to sell $4,100,000. The firm actually sells $3,900,000
worth of goods. It is also planning on purchasing $2,000,000 in new
equipment during the year. At the beginning of the year, the
company has $400,000 in inventory in its warehouse. Answer the
following based on the information above and show all your
work:
a) Calculate desired investment
b) Calculate realized investment
c) Calculate desired end of the year inventories...
A manufacturing company is producing $4,000,000 worth of goods this year and expects to sell $4,100,000....
A manufacturing company is producing $4,000,000 worth of goods
this year and expects to sell $4,100,000. The firm actually sells
$3,900,000 worth of goods. It is also planning on purchasing
$2,000,000 in new equipment during the year. At the beginning of
the year, the company has $400,000 in inventory in its warehouse.
Answer the following based on the information above and show all
your work:
f) Calculate Y
g) Calculate E
h) Based on your answers above, should the government...
Acme Manufacturing is producing $4,000,000 worth of goods this year and expects to sell $4,100,000. The...
Acme Manufacturing is producing $4,000,000 worth of goods this
year and expects to sell $4,100,000. The firm actually sells
$3,900,000 worth of goods. It is also planning on purchasing
$2,000,000 in new equipment during the year. At the beginning of
the year, the company has $400,000 in inventory stock in its
warehouse.
Find:
Planned Investment, Actual Investment, Desired end of year
inventories, actual end of year inventories, unplanned inventory
investment, Y, E
An Indonesian foreign firm agreed to sell and deliver goods to a Malaysian company that paid...
An Indonesian foreign firm agreed to sell and deliver
goods to a Malaysian company that paid a considerable sum of money
in advance. However, the contract was frustrated because of the 5.0
magnitude of an earthquake near Bima in West Nusa Tenggara. The
Malaysian company claimed the right to recover the deposit they
paid prior to the frustrating event. Advise the Malaysian
company.
During 2021, Beta Corporation expects to sell $50 in products and services.
During 2021, Beta Corporation expects to sell $50 in
products and services. It expects its accounts receivable to
decrease by $10. It plans to retire some manufacturing equipment
and predicts it can get $15 for it. In addition, Beta Corporation
has forecasted the following financial items for 2021:Depreciation expense $5Selling & administrative expense $6Capital expenditures $13Cost of goods sold expense $40Dividends to shareholders $3 Based on the above,
what is Beta Corporation’s total forecasted net cash
burn?
ABC Manufacturing expects to sell 1,025 units of product in 2021 at an average price of...
ABC Manufacturing expects to sell 1,025 units of
product in 2021 at an average price of $100,000 each based on
current demand.
The Chief Marketing Officer forecasts growth of 50
units per year through 2025. The $100,000 price will be constant
for 5 years.
However, ABC cannot produce more than 1,000 units
annually. They must update plant or replace it. If replaced,
initial working capital of $5 million is required. RRR is 14%.
Using excel functions, calculate NPV for both...
ABC Manufacturing expects to sell 1,025 units of product in 2021 at an average price of...
ABC Manufacturing expects to sell 1,025 units of
product in 2021 at an average price of $100,000 each based on
current demand.
The Chief Marketing Officer forecasts growth of 50
units per year through 2025. So, the demand will be 1,025 units in
2021, 1,075 units
in 2022, etc. and the $100,000 price will remain
consistent for all five years of the investment life. However, ABC
cannot produce more
than 1,000 units annually based on current
capacity.
In order to...
ABC Manufacturing expects to sell 1,025 units of product in 2021 at an average price of...
ABC Manufacturing expects to sell 1,025 units of
product in 2021 at an average price of $100,000 each based on
current demand.
The Chief Marketing Officer forecasts growth of 50
units per year through 2025. So, the demand will be 1,025 units in
2021, 1,075 units
in 2022, etc. and the $100,000 price will remain
consistent for all five years of the investment life. However, ABC
cannot produce more
than 1,000 units annually based on current
capacity.
In order to...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Explain the use of neural networking modeling in predictive analytics.
- Current Market Mix of Netflix, as detail as possible, please.
- This is all one question, thank you so much in advance! You must evaluate a proposal...
- X Company is considering the purchase of a new processor that costs $200,000. Shipping and setup...
- There are a large number of tasks involved in information technology and programming, and many of...
- Using one quantitative and one qualitative health policy research method described in this chapter, design a...
- What is the Rawls' solution to the age-old question of social (economic / distributive) justice?...
ADVERTISEMENT