How can california plastics use futures contracts andor, Financial Management

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How can california plastics use futures contracts andor

California Plastics uses crude oil as one of its major raw material inputs. The cur- rent price of crude oil is $95 per barrel. The company is concerned that significant increases in the price of crude oil could jeopardize its profits. Each $1 increase in the price of crude oil reduces the company’s earningspersharebyabout$0.02.

How can California Plastics use futures contracts and/or options to protect itself against unfavorable price movements?

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