Case Objectives
The case will accomplish the following objectives:
Objective #1
To develop a basic understanding of the various futures option strategies available to energy producers and consumers in order to recommend the best hedging strategy for the company. (view question #1)
Objective #2
To examine the floor option package strategy by determining the amortization of premiums and analyze the minimum and current cost calculations. (view question #2)
Objective #3
To discuss the appropriateness of using the cap option package strategy in the case of Burns Energy Associates. (view question #3)
Objective #4
To evaluate zero-premium collars option package by calculating the amortization of premiums and analyzing the maximum, current, and minimum cost computations. (view question #4)
Objective #5
To evaluate and measure the various risks present in the case including price, basis, and credit risks. (view question #5)
Objective #6
To understand the criteria that must be met in order for a transaction to qualify for hedge accounting. (view question #6)
Objective #7
To understand and record the transactions on the company's books with respect to the current accounting standards for derivatives. (view question #7)
Objective #8
To discuss the effects of the transactions on the company's financial statements in light of the recent changes in accounting standards for derivatives. (view question #8)
Objective #9
To evaluate and discuss the attributes of off-balance sheet risk of accounting loss if these financial transactions are not recorded on the company's balance sheet. (view question #9)
