REFERENCE: Ref.09_09 on March 1,2007,Mattie Company Received an Order to Sell a Sell

question 41

Multiple Choice

REFERENCE: Ref.09_09
On March 1,2007,Mattie Company received an order to sell a machine to a customer in England at a price of 200,000 British pounds.The machine was shipped and payment was received on March 1,2008.On March 1,2007,Mattie purchased a put option giving it the right to sell 200,000 British pounds on March 1,2008 at a price of $380,000.Mattie properly designates the option as a fair hedge of the pound firm commitment.The option cost $2,000 and had a fair value of $2,200 on December 31,2007.The following spot exchange rates apply: Mattie's incremental borrowing rate is 12 percent,and the present value factor for two months at a 12 percent annual rate is .9803.
-What was the net impact on Mattie's 2007 income as a result of this fair value hedge of a firm commitment?

• A)$1,660.40 decrease.
• B)$1,760.60 decrease.
• C)$2,240.40 decrease.
• D)$1,660.40 increase.
• E)$2,240.60 increase.

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Definitions:

Evolutionary Principles

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Aphasia

A disorder caused by damage to parts of the brain responsible for language, affecting speaking, reading, writing, or understanding language.

Prefrontal Cortex

The front part of the frontal lobes of the brain, involved in complex cognitive behavior, personality expression, decision making, and moderating social behavior.

Executive Functioning

A set of cognitive processes including working memory, flexible thinking, and self-control, that are necessary for managing oneself and one's resources to achieve a goal.