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Consumer Energy Corp. is an electric utility that uses natural gas to produce electricity. If the firm does not hedge its exposure to natural gas
Consumer Energy Corp. is an electric utility that uses natural gas to produce electricity. If the firm does not hedge its exposure to natural gas prices, it will have taxable income in the coming year of $ if the market price of natural gas is low and $ if the market price of natural gas is high The probability of each outcome is The firm has a corporate tax rate of and cannot carry its losses forward.
The firm has decided to hedge a portion of its natural gas exposure by entering into futures contracts that will provide a gain of $ if the market price of natural gas in the coming year is high and a loss of $ if the market price of natural gas is low The firm has to pay transaction costs of $ to enter into the futures contracts. What is the firms expected net aftertax income for the coming year, after undertaking this hedge?
$
$
None of the other answer choices are correct
$
$
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