You work for a high end electronics firm that uses gold plated connectors on many components. Your CFO is worried that an increase in the price of gold could have a major impact on the firm's profitability So, he has asked you to explore the possibility of hedging the price of gold with futures contracts. A standard gold futures contract is for 100 Troy ounces. Your firm uses 800 ounces of gold per year. The spot price of gold is currently $1,500 per ounce, while the 6-month futures price is $1,550. You will next need to buy gold six months from now. Do the computations and answer the questions below. Don't forget to answer the question below the table. 15 16 17 Given Info: Current Spot Price 6-month Futures Price Total Gold purchase $ $ 1,500 1,550 800 ounces What side of the option contract should the firm take? (this is a one word answer) Answer: Given the possible ending prices of gold AND the percentage of the firm's gold purchase hedged, Complete the table below. The numbers in the green cells should be the total cost of the firm's gold purchase. (Don't overthink this it should be fairly easy.) % of gold purchase hedged Spot price of gold In 6 months 25% 50% 75% 100% 1,200 1250 1300 Remember, we want the TOTAL cost of the firm's gold Valuation Tools Short Answer Essays Hedging Options WACC Given the possible ending prices of gold AND the percentage of the firm's gold purchase hedged, Complete the table below. The numbers in the green cells should be the total cost of the firm's gold purchase. (Don't overthink this. It should be fairly easy.) % of gold purchase hedged Spot price of gold in 6 months 0% 25% 50% 75% 100% 1,200 1250 1300 Remember, we want the TOTAL cost of the firm's gold purchase in the table - include the hedged and unhedged portions 1350 1400 1450 1500 1550 1600 1650 1700 1750 1800 Make a recommendation for the firm based on your analysis above