A Manufacturer of Breakfast Cereal Is Concerned About Corn Prices

question 75

Multiple Choice

A manufacturer of breakfast cereal is concerned about corn prices.The firm anticipates needing 1 million bushels of corn in one month.The current price of corn is $6.50 per bushel and the futures price for delivery in one month is $7.00 per bushel.The cost to store the corn for 1 month is $100,000.What should the firm do?

• A)Hedge with futures for a total cost of $7,000,000.
• B)Hedge with futures for a total cost of $6,900,000.
• C)Buy the corn now and store for 1 month,for a total cost of $6,500,000.
• D)Buy the corn now and store for 1 month,for a total cost of $6,600,000.
• E)Wait one month and buy the corn at the market price in one month.

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Definitions:

Incremental Change

Gradual, step-by-step modifications made in processes, practices, or policies within an organization to improve or adapt.

Frame-bending Change

A transformational approach that significantly alters the existing norms, structures, or practices within an organization.

Continuous Improvement Change

An ongoing effort to enhance products, services, or processes through incremental and breakthrough improvements.

Incremental Change

A process of making small, gradual modifications or improvements to something over time.