On October 1, 2013, Eagle Company Forecasts the Purchase of Inventory

question 93

Multiple Choice

On October 1, 2013, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2014, at a price of 100,000 British pounds. On October 1, 2013, Eagle pays $1,800 for a three-month call option on 100,000 pounds with a strike price of $2.00 per pound. The option is considered to be a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2013, the option has a fair value of $1,600. The following spot exchange rates apply: $\begin{array}{|l|c|}\hline \text { Date } & \text { Spot Rate } \\\hline \text { October 1, 2013 } & \$ 2.00 \\\hline \text { December 31,2013 } & \$ 1.97 \\\hline \text { February 1,2014 } & \$ 2.01 \\\hline\end{array}$ What is the amount of option expense for 2014 from these transactions?

• A)$1,000.
• B)$1,600.
• C)$2,500.
• D)$2,600.
• E)$0.

Understand the different dividend policies and their implications.

Assess the impact of dividend policy on a firm’s capital structure.

Recognize factors influencing dividend policy preferences among investors.

Analyze the effects of taxation on dividend preferences and policies.

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