The vegetarian burgers of Beyond Meet Ltd. are made of green mung beans. There was a drought in India recently and the company would like to secure the price of Mung beans used in its products. To do so the company is looking to sign a forward contract with the Thai company Green is Always Good (GAG) for 20,000 Kg at a future price of $1.28.

a) Explain what position the company should take in the futures market.

b) Currently Mung Beans are traded for $1.28 per Kilo in the Indian commodity markets. Show that whether the price of mung Beans will increase to $1.40 or decrease to $1.16 the company will have the same net payment for Mung Beans

c) Explain two potential problems that Beyond Meet could face when signing the forward contract with GAG.

d) Just before the contract was signed the GAG CEO decided to quit and there is uncertainty about the future of the company. As a result, Beyond Meet decided to buy a forward contract on Soybeans. What is the main variable that will determine the success of the hedge? (2 marks)

e) Beyond Meet is looking to expand its operation and sell green Mung Beans as an independent product. The company estimates that the new line of business will require an investment of $10m, the cost of importing green Mung Beans is $1.25/kg and that the company can sell each bag in the United States for a price that is $0.15 higher (i.e. $1.40). Assume that both the payment for important green Mung Beans and the revenue from selling it occur at the end of the year. How many Kilograms per year will the company need to sell in order to ensure that the project has positive NPV (that is the break-even point) if the project lasts for perpetuity and the cost of capital is 20% p.a.?

f) A student argued that the company will not be affected by changes in the price of importing green Mung beans as the company can simply continue to sell them at $0.15 higher than the cost to import. Is the student right in her argument? Relate between your answer and one of the weaknesses of break-even point analysis