The question does not mention when does the farmer has to sell the cattles in the future. So assuming the cattles are to be sold in the next 3 months.
The farmer can short 3 contracts that have 3 months to maturity. Two contracts would be of the 40k cattles whereas one of 20k.
Explanation:
When the prices of the cattles falls in the future, the gain on the futures contract will offset the loss on the sale of the cattle. Whereas, when the prices of cattle rises in the future, the gain on the sale of the cattle will be offset by the loss on the futures contract.
So basically, using futures contracts to hedge has the advantage that it can at no cost reduce risk to almost zero.
capitalized interest = weighted average accumulated expenditure for the year x interest rate of the loan = $889,200 x 10% = $88,920
Capitalized interest can be added to the basis of the new building that is being constructed. This way, the building's depreciable value will increase.
True. This demonstrates that buyer has confidence on buying products that are branded. She has trust that the product can satisfy her because the brand already earned a reputation in its field. It also shows that she passed scrutiny on the bought product.
