Suppose the Fixed Cost of Christmas Trees Business Is $7,000

question 32

Multiple Choice

Suppose the fixed cost of Christmas trees business is $7,000 and sunk.The variable cost for each tree is $20.According to the forecast,the market price for Christmas trees is $25 each and the owner could sell 1000 trees at most each year.The owner

• A)should shut down the business.
• B)should keep operating.
• C)should sell less.
• D)None of the above.

Distinguish between call and put options and their strategic utilization in financial risk management.

Comprehend the impact of derivatives on a firm’s risk profile and the valuation implications.

Grasp the concept of basis risk and its relevance in the hedging process.

Understand cross-hedging and its application to manage risk in financial operations.

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Definitions:

Net Income

Net Income is the total earnings of a company after subtracting all expenses, taxes, and costs from its total revenue.

Dividend

A portion of a company's earnings distributed to shareholders, typically in the form of cash or additional shares.

Treasury Stock

Shares of a company's own stock that it has repurchased from shareholders and can hold, reissue, or retire.

Common Stock

Represents ownership shares in a corporation, giving shareholders voting rights and a residue claim on corporate earnings in the form of dividends.