Homework Help for Finance (page 1363)

372,338 Results
Ask your question
Ask your question

What is the solution to this problem?

Vino Veritas Company, a U.S.–based importer of wines and spirits, placed an order with a French supplier for 1,500 cases of wine at a price of 250 euros per case. The total purchase price is 375,000 euros. Relevant exchange rates for the euro are as follows:

Date Spot Rate Forward Rate to
October 31, 2015
Call Option Premium
for October 31, 2015
(strike price $1.25)
September 15, 2015 $ 1.25 $ 1.31 $ 0.040
September 30, 2013 1.30 1.34 0.075
October 31, 2015 1.35 1.35 0.100

Vino Veritas Company has an incremental borrowing rate of 12 percent (1 percent per month) and closes the books and prepares financial statements at September 30.

a.

Assume that the wine arrived on September 15, 2015, and the company made payment on October 31, 2015. There was no attempt to hedge the exposure to foreign exchange risk. Prepare journal entries to account for this import purchase. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

b.

Assume that the wine arrived on September 15, 2015, and the company made payment on October 31, 2015. On September 15, Vino Veritas entered into a 45-day forward contract to purchase 375,000 euros. It properly designated the forward contract as a fair value hedge of a foreign currency payable. Prepare journal entries to account for the import purchase and foreign currency forward contract. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your present value interest factor to four decimal places. Round your answers to 2 decimal places.)

c.

Vino Veritas ordered the wine on September 15, 2015. The wine arrived and the company paid for it on October 31, 2015. On September 15, Vino Veritas entered into a 45-day forward contract to purchase 375,000 euros. The company properly designated the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the forward rate. Prepare journal entries to account for the foreign currency forward contract, firm commitment, and import purchase. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your present value interest factor to four decimal places. Round your answers to 2 decimal places.)

d.

The wine arrived on September 15, 2015, and the company made payment on October 31, 2015. On September 15, Vino Veritas purchased a 45-day call option for 375,000 euros. It properly designated the option as a cash flow hedge of a foreign currency payable. Prepare journal entries to account for the import purchase and foreign currency option. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your present value interest factor to four decimal places.)

e.

The company ordered the wine on September 15, 2015. It arrived on October 31, 2015, and the company made payment on that date. On September 15, Vino Veritas purchased a 45-day call option for 375,000 euros. It properly designated the option as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the spot rate. Prepare journal entries to account for the foreign currency option, firm commitment, and import purchase. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your present value interest factor to four decimal places. Round your answers to the nearest dollar amount.)

Ken Smith wants to start a deck and fence company called Heritage Design. Ken will run the business for three years and then retire. Assume that his investment outlays will occur immediately and all operating cash flows occur at​ year-end with the first ​year's cash flows occurring one year from now. Ken plans to buy two​ pick-up trucks at a cost of $44,100 per vehicle. He also expects to purchase $21,400 worth of tools and equipment. The trucks and the equipment are classified as a​ 5-year property​(MACRS depreciation rates are shown in the table).

Ken is forecasting that he will build 145 decks in the first year and 155 decks in years 2 and 3. He anticipates that the average deck will be priced at $6,400. Ken estimates that the cost of lumber for the typical deck is $2,000. Ken will rent an office and a garage.​ Rent, office ​expenses, and vehicle expenses are expected to be $50,000 per year. Ken will hire a​ salesman, a​ receptionist/bookkeeper and two installers to help with deck construction. Total wages and salaries are expected to be $290,000 per year. The corporate tax rate is 30%.

At the end of three years, Ken expects that he will be able to sell each of the trucks for $8,000, but he expects that he tools and equipment will be worthless.

Calculate the depreciation expense in year 2.

Calculate the accumulated depreciation in year 3.

Calculate the book value of the asset at the end of year 1.

Calculate the operating cash flow in year 2.

Calculate the net salvage value on the assets in year 3.

Calculate the terminal cash flow including OCF.

MACRS Table

Year 5-Year 7-Year 10-Year

1 20.00% 14.29% 10.00%

2 32.00% 24.49% 18.00%

3 19.20% 17.49% 14.40%

4 11.52% 12.49% 11.52%

5 11.52% 8.93% 9.22%


Homework Help 30,000,000
Finance 3,700,000