PLEAST HELP ANSWER Problem 14 Question Help Eastmark Electrical Equipment Manufa

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PLEAST HELP ANSWER

Problem 14 Question Help Eastmark Electrical Equipment Manufacturers needs to secure its supply of copper for the next year. The price of copper is extremely volatile because of huge month-to-month variation in demand. Eastmark wants to break even with a hedge against future copper prices. Currently, the market price for copper is reasonably low at $4.25 per pound or $425 (CWT). Eastmark has entered into a contract with the supplier for 600,000 pounds of copper per month starting in January at market prices. Eastmark has also entered into a futures contract with a financial institution for 600,000 pounds per month at $4.25 per pound. CWT (hundredweight) is equal to 100 pounds in the United States. Suppose the futures contact is still in force in February. a. However, assume the firm has just lost a key client's business and only purchases 550,000 pounds of copper. i. Calculate the one month financial and the physical results if the market price of copper has risen to $5.75 per pound. Calculate only the financial impact of copper transactions and disregard the loss of revenue due to business loss The financial result is $ (Enter your response as a whole number and include a minus sign if necessary.) Xx l .. 1.1 V? :/? '. (1.) More Enter your answer in the answer box and then click Check Answer.

Explanation / Answer

The company buys the quantity currently required at price at which future was bought and sells off rest of the quantity at the price

Out of 600000 , only 550000 pounds would be used. Therefore, 50000 pounds future would be left

They can sell these 50000 at 5.75 per pound

Net profit per pound = 5.75-4.25 = $1.5

Hence, Profit = 50000*1.5 = $75000

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