Diwali Airlines has a contract that gives it the opportunity to purchase up to 10,000,000 gallons of jet fuel at $2.00 per gallon. The current market price of jet fuel is $2.26 per gallon. Diwali believes it will only need 6,000,000 gallons of jet fuel. What is the value of this opportunity?

Question

Quizplus · Accepted Answer

The value of the opportunity is the difference between the contract price and the market price, multiplied by the number of gallons Diwali intends to purchase. Therefore, the value of the opportunity is (2.26 - 2.00) x 6,000,000 = $1,560,000.

Diwali Airlines Has a Contract That Gives It the Opportunity