Star Ltd. is a furniture manufacturer. Star purchases a call option with a price of $20,000...

 

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Star Ltd. is a furniture manufacturer. Star purchases a call option with a price of $20,000 to prevent the fluctuation of lumber prices. The call option gives Star Ltd. the right to purchase 1,000 pounds of lumber at a price of $100 per pound. Other costs to process the 1,000 pounds of lumber into furniture equal $10,000. Star can sell all the furniture at a total price of $150,000. REQUIRED: Calculate the economic income of Star Ltd. if the price of lumber is: 1. $120 per pound 2. $100 per pound 3. $80 per pound Star Ltd. is a furniture manufacturer. Star purchases a call option with a price of $20,000 to prevent the fluctuation of lumber prices. The call option gives Star Ltd. the right to purchase 1,000 pounds of lumber at a price of $100 per pound. Other costs to process the 1,000 pounds of lumber into furniture equal $10,000. Star can sell all the furniture at a total price of $150,000. REQUIRED: Calculate the economic income of Star Ltd. if the price of lumber is: 1. $120 per pound 2. $100 per pound 3. $80 per pound

Answer rating: 100% (QA)

1 120 per pound Economic Income Revenue from sale o... View the full answer