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(Answered) Use the following information for problems 9 and 10: On November


Use the following information for problems 9 and 10: On November
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Use the following information for problems 9 and 10: On November 1, Year 1, Black Lion Company forecasts the purchase of raw materials from an Argentinian supplier on February 1, Year 2, at a price of 200,000 Argentinian pesos. On November 1, Year 1, Black Lion pays $1,200 for a three-month call option on 200,000 Argentinian pesos with a strike price of $0.35 per peso. The option is properly designated as a cash flow hedge of a forecasted foreign cur- rency transaction. On December 31, Year 1, the option has a fair value of $900. The following spot exchange rates apply:,

 

,

 

Date U.S. Dollar per Argentinian Peso,

 

November 1, Year 1 . . . . . . . . . $0.35,

 

December 31, Year 1 . . . . . . . . 0.3,

 

February 1, Year 2 . . . . . . . . . . 0.36,

 

,

 

9. What is the net impact on Black Lion Company?s Year 1 net income as a result of this hedge of a forecasted foreign currency purchase? ,

 

a. $0.,

 

b. A $200 increase in net income.,

 

c. A $300 decrease in net income. ,

 

d. An $800 decrease in net income.,

 

10. What is the net impact on Black Lion Company?s Year 2 net income as a result of this hedge of a forecast foreign currency purchase? Assume that the raw materials are consumed and become a part of cost of goods sold in Year 2.,

 

a. A $70,000 decrease in net income.,

 

b. A $70,900 decease in net income. ,

 

c. A $71,100 decrease in net income. ,

 

d. A $72,900 decrease in net income.

 


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