Cronus Airlines has a contract that gives them the opportunity to purchase up to 13,000,000 gallons of jet fuel at $2.00 per gallon. The current market price of jet fuel is $2.3 per gallon. Cronus believes they will only need 4,000,000 gallons of jet fuel. What is the value of this opportunity

Question

Business

Amor

11 August, 17:15

Cronus Airlines has a contract that gives them the opportunity to purchase up to 13,000,000 gallons of jet fuel at $2.00 per gallon. The current market price of jet fuel is $2.3 per gallon. Cronus believes they will only need 4,000,000 gallons of jet fuel. What is the value of this opportunity

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Leonard · Answer 1

The value of this opportunity is $3,900,000

Explanation:

The value of opportunity here means the benefit which the contract provides to the Cronus Airline.

Here Cronus Airline can purchase jet fuel up to 13,000,000 gallons at $2.00 per gallon which would otherwise cost Cronus Airline $2.3 at market rate.

So the value of this opportunity would be calculated by =

= (13,000,000 x $2.3) - (13,000,000 x $2.00)

= 29,900,000 - 26,000,000

= $3,900,000