Question

Tin Atte Question 9 2.5 pts 2H Big Construction Company operates in all US Western states and has contracts starting six months from today. The revenues from contracts will be $540,000. An important determinant of the company's cost structure is the cost of fuel to power their engines. They estimated the deliveries in six months will require 18,000 gallons of fuel. Currently, fuel sells for $4.75 per gallon. There is a concern that the price could increase significantly between now and in six months. Big was able to purchase call options that would allow the company to purchase 18,000 gallons of fuel at $4.75 per gallon in six months. The cost of the options was $1,500. Six months after purchasing the options, the price of the fuel was $5.85 per gallon. What was the net benefit to Big of using call options to hedge its fuel exposure? e $16,500. O $24,523. O$12.256 G$28.125.

Answer 1

Net pafit $5.85-$75 $1500 8000 419800- $1500 18,300

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