Dozier Industries has entered into an international sales transaction. As part of this contract‚ Dozier will be installing an internal security system for a manufacturing firm in UK‚ for which Dozier has already received 10% down payment and it is expected to receive another GBP 1‚175‚000.00 in 3 months. Dozier’s costs are in USD‚ however its sales payment will be in GBP. Dozier is facing an exchange rate risk‚ especially since GBP has already depreciated by 2.3% between the time sales bid( in GBP)
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Dozier Industries Case On January 13‚ 1986 Dozier Industries‚ an American based firm‚ received notice that a bid on a project in the United Kingdom had been accepted. The project was to bring in £1‚175‚000 in revenue. Therefore‚ the revenue received for this project will need to be transferred into US dollars. When Dozier issued the bid on December 3‚ 1985 the project the exchange rate was $1.4820/£. This rate would have provided Dozier with the desired 6% profit on the project. On January
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the best one for Dozier. After their bid was accepted‚ Dozier has three options to choose from. Of the three choices‚ the 1st alternative yields the most profit. However‚ the profit from alternative 1 cannot be guaranteed‚ and it is much more volatile. The company wants to expand its market to the U.K. and also guarantee the profit (while minimizing exchange risk). Therefore‚ alternative 2‚ which has a higher profit margin than alternative 3 is the best hedging choice for Dozier. Alternative
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UVA-F-0745 DOZIER INDUSTRIES (A) Richard Rothschild‚ the chief financial officer of Dozier Industries‚ returned to his office after meeting with two officers of Southeastern National Bank. He had requested the meeting to discuss financial issues related to Dozier’s first major international sales contract‚ which had been confirmed the previous day‚ January 13‚ 1986. Initially‚ Rothschild had contacted Robert Leigh‚ a vice president of the bank‚ who had primary responsibilities for Dozier’s
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Dozier Industrias Dozier Industries Case Dozier Industrias caso Dozier Industrias tiene tres opciones para elegir la hora de decidir sobre la mejor manera de manejar su primera cobrar en dólares fuera de Estados Unidos denominada: 1. 1. Entering into a forward contract in which Dozier would sell forward British Pounds. La suscripción de un contrato a plazo en el que Dozier vendería libras británicas hacia adelante. 2. 2. Execute a spot market transaction to create a synthetic forward hedge
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Dozier Since the acceptance of Dozier Industries’ bid‚ the company CFO has been exploring the methods available to best manage the exchange risk associated with the award payment being dispersed in British Pounds (GBP). He originally considered a forward contract or a spot contract‚ but is now investigating how currency options could help hedge against uncertain foreign exchange exposure. The CFO needs to decide whether or not options contracts might provide some benefit to hedge the currency
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Dozier Hedging Alternatives Forward Market Hedge: Dozier would purchase U.S. dollars under a forward contract. The contract would obligate Dozier to pay £1‚057‚500 in exchange for £1‚057‚500 x 1.4198 $/£ = $1‚501‚438.50 assuming the transaction was at the quoted 3-month forward rate in Exhibit 4. Relative to the value of the contract at the current exchange rate‚ £1‚057‚500 x 1.4370 $/£ = $1‚519‚627.50 Dozier would accepting a reduction in the revenue from the contract of $1‚519
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EAGLE INDUSTRIES CASE 1. Why are office products frequently chosen as a lead commodity in strategic sourcing efforts? Office products were chosen as the lead commodity in strategic sourcing efforts conducted by Smith and his team mainly because of the fact that there was not an appreciable difference in the product specifications when it came to differentiating different suppliers. It would almost be like comparing apples against apples. This would therefore provide a nice segway to try and understand
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also created a pound obligation 90 days hence. Dozier would borrow pounds and exchange the proceeds into dollars at the spot rate. On April 13‚ Dozier would use its pound receipts to repay the loan. Any gains or losses on the receivable due to a change in the value of the pound would be offset by equivalent losses or gains on the loan payment. John Gunn indicated that there would be no difficulty for Southeastern to arrange the pound loan for Dozier through its correspondent bank in London. He believed
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SAMPLE ANSWER FORMAT Oak Industries‚ Inc. Case – sample answer 1. Is it unethical for a company to intentionally understate its earnings? Why or why not? Yes‚ it is clearly unethical to intentionally understate earnings since the management makes representations that the financial statements are complete and accurate. It is obvious that intentionally understating earnings is done to allow the company to later overstate earnings by using falsified reserves to cover the inadequate
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