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Manal Elkhoshkhany
Manal Elkhoshkhany, Bachelor's Degree
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The specialty chemical company operates a crude oil refinery

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The specialty chemical company operates a crude oil refinery located in New Iberia,LA. The company refines crude oil and sells the by-products to companies that make plastic bottles and jugs. The firm is currently planning for its refining needs for one year hence. Specifically, the firms analysts estimate that specialty will need to purchase $1 million barrels of crude oil at the end of the current year to provide the feed stock for its refining needs for the coming year. The 1 million barrels of crude will be converted into by-products at an average cost of $20 per barrel that specialty expects to sell for $170 million or $170 per barrel of crude used. The current spot price of oil is $115 per barrel and specialty has been offered a forward contract by its investment banker to purchase the needed oil for a delivery price in one year of $120 per barrel.

a. Ignoring taxes, what will specialties profits be if oil prices in one year are as low as $100 or as high as $140, assuming the firm does not enter into a forward contract?

price of oil/bbl unhedged annual profits (round to the nearest dollar

$100
$105
$110
$115
$120
$125
$130
$135
$140

b. If the firm were to enter into the forward contract, demonstrate how this would effectively lock in the firms cost of fuel today, thus hedging the risk of fluctuating crude oil prices on the firms profits for the next year.
Submitted: 10 months ago.
Category: Single Problem
Expert:  Manal Elkhoshkhany replied 10 months ago.
Hello

Please advise your deadline

Thank you
Customer: replied 10 months ago.

I need it by 7pm tonight thank you

Expert:  Manal Elkhoshkhany replied 10 months ago.
ok deal :)
Customer: replied 10 months ago.

Sounds great! thank you so much

Expert:  Manal Elkhoshkhany replied 10 months ago.
No problem at all :)

Customer: replied 10 months ago.

awesome! I look forward to your answer. Have a awesome day

Expert:  Manal Elkhoshkhany replied 10 months ago.
Thanks a million

Same to you
Expert:  Manal Elkhoshkhany replied 10 months ago.
I am done :)

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Manal Elkhoshkhany, Bachelor's Degree
Category: Single Problem
Satisfied Customers: 9473
Experience: Finished my BA degree with a GPA of 4.0.
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