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A large dental lab plans to purchase 1,000 ounces of gold in 1 month. Assume that gold prices can be $280, $300, or $320 an ounce.
a. What will total expenses be if the firm purchases call options on 1,000 ounces of gold with an exercise price of $300 an ounce? The options cost $3 per ounce.
b. What will total expenses be if the firm purchases call options on 1,000 ounces of gold with an exercise price of $295 an ounce? These options cost $7 per ounce.
Financing Activities
Transactions that result in changes in the size and composition of the equity capital or borrowings of the company.
Dividends
A distribution of a portion of a company's earnings to its shareholders, usually determined by the board of directors.
Operating Activities
Cash flows directly related to the production and delivery of a company's goods and services.
Direct Method
A method of reporting the cash flows from operating activities as the difference between the operating cash receipts and the operating cash payments.
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