Question

# In six months, a cereal company plans to sell 40,000 boxes of “Corn Crisps” for \$4.50...

In six months, a cereal company plans to sell 40,000 boxes of “Corn Crisps” for \$4.50 per box and will need to buy 20,000 bushels of corn to do so. In doing so, it also incurs non-corn costs of \$79,000. The current spot price of corn is \$4.50 per bushel, and the six-month forward price is \$4.64. Assuming the company remains unhedged, what total profit would it earn if the market price of corn in six months is \$3.90, \$4.30, \$4.70, and \$5.10, respectively?

Profit of the company if the company is remain unhedged -

 Particulars Price of Corn \$ 3.9 Price of Corn \$ 4.3 Price of Corn \$ 4.7 Price of Corn \$ 5.1 Sales of Boxes(40000 x 4.50) 180000 180000 180000 180000 Cost of Bushels of Corn 78000 86000 94000 102000 non -Corn Costs 79000 79000 79000 79000 Profit 23000 15000 7000 -1000

Profit of the Company after hedging -

 Particulars If Company is hedged Sales of Boxes(40000 x 4.50) 180000 Cost of Bushels of Corn 92800 non -Corn Costs 79000 Profit 8200