A steel maker needs 5,000,000 tons of coal next year. The current market price for coal is $70.00 per ton. At this price, the firm expects its EBIT to be $500 million. What will the firm's EBIT if the firm enters into a supply contract for coal for a fixed price of $72.00 per ton?

Question

Quizplus · Accepted Answer

C) ($72 − $70) × 5,000,000 tons = $10,000,000 decrease in EBIT.
EBIT = $500,000 ,000 − $10,000,000 = $490,000,000

A Steel Maker Needs 5,000,000 Tons of Coal Next Year