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:

Real Estate

Property consisting of land and the buildings on it, along with its natural resources, such as crops, minerals, or water.

Variability

The extent to which data points in a statistical distribution or dataset differ from each other.

Real Estate

Real estate refers to property consisting of land and the buildings on it, along with its natural resources, and is subject to transactions like buying, selling, or renting.

Coefficient

A constant or numerical value that comes before and multiplies a variable in an expression of algebra.