Queen City Enterprises wants to be sure it has 10,000 cases of Pinot Nior to sell next December.In February, they enter into an agreement to buy the wine at a price of 34.62 euro per case.Payment will be due at the end of December.They expect to sell the wine to restaurants and retailers for $63 per case.If Queen City does not hedge its position and the exchange rate in December is $1.30 /euro, what is the gross profit on the wine? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

The cost of purchasing the wine in euros is 34.62 euro per case. With an order of 10,000 cases, the total cost in euros is 34.62 * 10,000 = 346,200 euros. If the exchange rate in December is $1.30/euro, the total cost in dollars is 346,200 euros * $1.30/euro = $449,060. The revenue from selling the wine at $63 per case for 10,000 cases is 63 * 10,000 = $630,000. The gross profit is the revenue minus the cost, which is $630,000 - $449,060 = $180,940. Rounded to the nearest dollar, the answer is $179,940.

Queen City Enterprises Wants to Be Sure It Has 10,000