Reference no: EM13972950
Use the following information for problems 9 d 10: O November 1, Yer 1, Blck Lio Company forecasts the purchase of raw materials from Argentinian supplier o February 1, Yer 2, t price of 200,000 Argentinian pesos. O November 1, Yer 1, Blck Lio pays $1,200 for three-moth call option o 200,000 Argentinian pesos with strike price of $0.35 per peso. The option is properly designated cash flow hedge of foretasted foreign currency trisection. O December 31, Yer 1, the option has fir 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 . . . . . . . . $0.30
February 1, Year 2 . . . . . . . . . . $0.36
1. What is the net impact o Blck Lio Company's Year 1 net income s result of this hedge of forested foreign currency purchase?
a. $0.
b. $200 increase in net income.
c. $300 decrease in net income.
d. $800 decrease in net income.
2. What is the net impact o Blck Lio Company's Year 2 net income s result of this hedge of forecast foreign currency purchase? assume that the raw materials re consumed d become part of cost of goods sold i Year 2.
a. $70,000 decrease in net income.
b. $70,900 decrease in net income.
c. $71,100 decrease in net income.
d. $72,900 decrease in net income.