On March 1, 2011, Mattie Company Received an Order to Sell

question 17

Multiple Choice

On March 1, 2011, 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, 2012. On March 1, 2011, Mattie purchased a put option giving it the right to sell 200,000 British pounds on March 1, 2012 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, 2011. The following spot exchange rates apply: $$\begin{array} { | l | c | } \hline \text { Date } & \text { Spot Rate } \\\hline \text { March 1, 2011 } & \$ 1.90 \\\hline \text { December 31, 2011 } & \$ 1.89 \\\hline \text { March 1, 2012 } & \$ 1.84 \\\hline\end{array}$$ 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 2012 income as a result of this fair value hedge of a firm commitment?

• A) $379,760.60 decrease.
• B) $8,360.60 increase.
• C) $8,360.60 decrease.
• D) $4,390.40 decrease.
• E) $379,760.60 increase.

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Definitions:

Nutrients

Substances that provide nourishment essential for the growth and maintenance of life.

Fixed Virulence

A concept referring to a pathogen's stable level of harm or aggressiveness towards its host, not commonly used as a standardized term in scientific literature (NO real standardized definition).

Evolve

The process in which multiple forms of life are presumed to have originated and diversified from earlier types throughout the history of the planet.

Antibiotics

Substances used to kill or inhibit the growth of bacteria, often used to treat bacterial infections in humans and animals.