Question

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 milion. 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? OA. $350 million B. S410 million O C. S490 million O D. S510 million OE. $500 million

Answer 1

Answer C. $490.

Explanation :

Additional cost = 5,000,000($70-72)

=10,000,000

Existing Existing EBIT - New EBIT

= 500- 10 = $490