Heinz Uses 2000 Tons of Corn Syrup Each Year as an Ingredient

Heinz uses 2000 tons of corn syrup each year as an ingredient in its tomato ketchup products.Heinz is concerned about the increase in prices of corn-based products and purchases a fixed-price contract to buy corn syrup at $20,000 per ton.What is the impact on earnings before taxes as opposed to no hedging if the price of corn is $15,000 per ton over the next year?

A) +$5 million
B) -$10 million
C) $0
D) +$10 million
E) -$5 million

Correct Answer:

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