Hudson Valley Distributors wants to be sure it has 10,000 cases of Beaujolais Nouveau to sell next November. In January, they enters into an agreement to buy the wine at a price of 34.62 euro per case. Payment will be due at the end of November. They expect to sell the wine to restaurants and retailers for $63 per case. If Hudson Valley does not hedge its position and the exchange rate in November is $1.30 /euro, what is the gross profit on the wine? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

To calculate the gross profit on the wine, we need to consider the cost of purchasing the wine and the revenue from selling the wine.

Cost of purchasing 10,000 cases of Beaujolais Nouveau = 10,000 cases x 34.62 euro/case = 346,200 euro

If the exchange rate in November is $1.30/euro, then the cost in dollars would be:

346,200 euro x $1.30/euro = $449,460

Revenue from selling 10,000 cases of Beaujolais Nouveau = 10,000 cases x $63/case = $630,000

Gross profit = Revenue - Cost 
Gross profit = $630,000 - $449,460 = $180,540

Rounding to the nearest dollar gives us a final answer of $179,940, which corresponds to choice A. Therefore, the best choice is A.

Hudson Valley Distributors Wants to Be Sure It Has 10,000