Southwest Airlines hedged the cost of jet fuel by purchasing options that allowed the airline to purchase

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Southwest Airlines hedged the cost of jet fuel by purchasing options that allowed the airline to purchase fuel at a fixed price for 5 years. If the market price of fuel was $0.50 per gallon higher than the option price in year 1, $0.60 per gallon higher in year 2, and amounts increasing by $0.10 per gallon higher through year 5, what was the present worth of SWA’s savings per gallon? Use i  10%

per year.

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Basics Of Engineering Economy

ISBN: 9780073376356

2nd Edition

Authors: Leland T. Blank, Anthony Tarquin

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