Idris has been awarded a contract to supply a crude palm oil at a price %1000 per metric ton. Deeva Mills Berhad, an established company will purchase this commodity as pe agreed price. An agreement has been signed between Idris and Deeva Mills Berhad. Analyse the financing facilities that suits to the above situation?

Idris has been awarded a contract to supply a crude palm oil at a price %1000 per metric ton. Deeva Mills Berhad, an established company will purchase this commodity as pe agreed price. An agreement has been signed between Idris and Deeva Mills Berhad. Analyse the financing facilities that suits to the above situation?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 23P

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Idris has been awarded a contract to supply a crude palm oil at a price RM1000 per metric ton. Deeva Mills Berhad, an established company will purchase this commodity as per agreed price. An agreement has been signed between Idris and Deeva Mills Berhad. Based on the situation above, please answer the following questions: a. Analyse the financing facilities that suits to the above situation. b. Discuss the responsibilities of the parties involved in this contract. c. Explain the benefit received by Idris if he enters into this contract. d. Discuss the consequences faced by Idris if he unable to deliver the commodity within the stipulated time.
Petrobras, the Brazilian energy company, has identified two alternatives to provide potable water to offshore platforms—purchase and operate the equipment, or contract long term with Manal and Associates, an international oilfield service corporation. For the estimates shown, use capitalized cost analysis at i = 6% per year to determine (a) the better economic choice for Petrobras, and (b) the maximum annual M&O cost that will cause Manal and Associates to succeed in winning the contract. Alternative Purchase Contract First cost, $ −300,000 −850,000 M&O, $ per year −10,000, year 1 + 2% increase each year thereafter −10,000 Salvage value, $ 70,000 — Expected use, years 8 40+
Monument Company (a U.S.-based company) ordered a machine costing €150,000 from a foreign supplier on January 15, when the spot rate was $1.19 per €. A one-month forward contract was signed on that date to purchase €150,000 at a forward rate of $1.21. The forward contract is properly designated as a fair value hedge of the €150,000 firm commitment. On February 15, when the company receives the machine, the spot rate is $1.20. At what amount should Monument Company capitalize the machine on its books? Multiple Choice $29,000 $181,500 $178,500 $180,000
Manufacturer M, a large equipment manufacturer, enters into a contract to sell Product A to Customer C for an upfront cash payment of € 300,000. Upon signing the contract, Manufacturer M expects to deliver Product A to Customer C in two years’ time. The performance obligation will be satisfied at a point in time. Manufacturer M’s borrowing rate is 10% (the rate that would be used in a separate financing transaction). Manufacturer M concludes that the contract contains a significant financing component.What are the journal entries to record?
Executory contracts are contracts where both sides have not yet performed their obligations. If your company has a long-term contract for the supply of raw materials to XYZ Sdn Bhd for 5,000 tons per year for five years at a selling price of RM1,000 per ton and the market price has fallen to RM800 per ton, should this be recorded as a RM200 a ton revenue in the current period? Justify your answer
Legaspi Company produces colorful 100% cotton shirts and the entity needs 50,000 kilos of raw materials in the production process. On December 1, 2021, the entity purchased a call option as a cash flow hedge to buy 50,000 kilos on July 1, 2022. The option strike price is P100 per kilo. The entity paid P50,000 for the call option. The derivative option contract means that if the market price is higher than P100, the entity can exercise the option and buy the asset at the strike option price of P100. If the market price is lower than P100, the entity can throw away the option and buy the asset at the cheaper price. The market price per kilo is P110 on December 31, 2021 and P115 on July 1, 2022. 1. What amount should be reported às derivative asset on December 31, 2021? a. 500,000 b. 450,000 c. 750,000 d. 700,000 2. What amount should be reported as cash settlement from the speculator on July 1, 2022? a. 750,000 b. 700,000 c. 500,000 d. 450,000
Assumea major oil refining company with many refineries and gas stations in the United States enters into a Forward contract to buy 1,000,000 barrels of oil from an independent oil company in Oklahoma mid- November. They negotiate a delivery price of $85.5 per barrel. Draw the payoff diagram for Valero, the long side of the contract. Then draw the payoff diagram for the independent oil company, the short side of the contract.
Jackson, a U.S. company, acquires a variety of raw materials from foreign vendors with amounts payable in foreign currency (FC). The company needs to acquire 20,000 units of raw materials, and the goods are expected to have a price of 100,000 FC. Assume that the inventory can be subsequently sold to U.S. customers for $160,000. Jackson is contemplating committing to the purchase of the inventory on September 1 with delivery on November 1. However, rather than making a commitment, the company could forecast a probable purchase of inventory with delivery on November 1. In either case, assume that on September 1 the company would either (a) acquire a forward contract to buy 100,000 FC with a forward date of November 1 or (b) acquire an option to buy FC in November at a strike price of $1.250. The option premium is expected to cost $2,100.Various spot rates, forward rates, and option values are as follows: Spot Rate Forward Rate forNovember 1 Time Value ofOption September 1 . . . .…
Bicol Company uses approximately 200,000 units of raw material in its manufacturing operations. On December 1, 2021, the entity purchased a call option to buy 200,000 units of the raw material on July 1, 2022 at a strike price of P25 per unit. The entity paid P20,000 for the call option. The entity designated the call option as a cash flow hedge against price fluctuation for its July purchase. The market price of the raw material is P28 on December 31, 2021 and P21 on July 1, 2022. 1. What amount should be reported as derivative asset on December 31, 2021? a. 600,000 b. 580,000 C. 20,000 d. 0 2. What amount should be recognized as loss on call option in 2022? a. 300,000 b. 500,000 c. 200,000 d. 20,000
Bicol Company uses approximately 200,000 units of raw material in its manufacturing operations. On December 1, 2021, the entity purchased a call option to buy 200,000 units of the raw material on July 1, 2022 at a strike price of P25 per unit. The entity paid P20,000 for the call option. The entity designated the call option as a cash flow hedge against price fluctuation for its July purchase. The market price of the raw material is P28 on December 31, 2021 and P21 on July 1, 2022. 3. What amount should be reported as derivative liability on July 1, 2022? a. 800,000 b. 400,000 c. 780,000 d. 0 4. What amount should be reported as cost of purchases on July 1, 2022? a. 5,000,000 b. 4,980,000 c. 4,200,000 d. 4,220,000
Naga Company uses approximately 200,000 units of raw materials in the manufacturing operations. On December 1, 2021, the entity purchased a call option to buy 200,000 units of the raw materials on June 1, 2022 at a price of ₱25 per unit. The entity paid ₱20,000 for the call option and designated the call option as a cash flow hedge against price fluctuation for the June purchase. On December 31, 2021, the market price of the raw material is ₱27 per unit and on June 1, 2022, the market price is ₱28. Required: Prepare journal entries for 2021 and 2022 to record the call option and the purchase of the raw material.
On June 1, 2016, TCO enters into a forward agreement with XYZ to buy 100,000 gallons of fuel oil at $2.40 on December 31, 2016. At the time of inception of the forward, the price of fuel oil is $2.45. On December 31, 2016, the price of fuel oil is $2.48. The contract allows for net settlement. Required What is the net settlement on the forward contract?