1. In Nov 2021 Adam D., the operations manager of Millsap Fuel Distributors, is wondering if he...

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1. In Nov 2021 Adam D., the operations manager of Millsap Fuel Distributors, is wondering if he should order the company’s need for 160,000 liters of ultra-low sulfur diesel (ULSD) for March 2022 distribution, or delay this decision. There is a one month delivery lead time. He has been offered the following prices for one liter of ULSD by Petro-Canada, its supplier:

Dec Jan Feb

$0.79 $0.83 $0.94

Adam thinks that price of ULSD will go down from then (Nov) to last chance to order (Feb).
a. Looking at the prices and other information, do you agree with Adam? Briefly explain.

It is now Dec 2021 and Dan has been offered the following prices for one liter of ULSD by Petro-Canada:

Jan Feb

$0.88 $0.95

Adam thinks that the price of ULSD will go up from then (Dec) to last chance to order (Feb), and decides to order March’s needs then. Millsap has enough inventory space to store this amount but it will cost 1% of the price of fuel per month in inventory holding cost.

b. Should Adam order ULSD to be delivered in Jan and store it for two months, or order ULSD to be delivered in Feb and store it one month? Show your work.

2. Refer to problem 1. Adam wants to get help with price forecasting and protect his company against ULSD price rise. He finds out that ULSD is being traded in CME group under the name NY Harbor ULSD. Find the correct web site.
a. What is the contract size of NY Harbor ULSD?
b. What is the unit of measure?
c. Determine a forecast for April’s ULSD price using Futures prices, and copy and paste the report here.
d. Adam wants to hedge against price rise over (Canadian) $1.00 per liter for his May needs. After conversion for currency, unit of measure, and other costs in Canada, he thinks that US$2.80 per gallon is the correct strike price for Millsap. That is, he does not want to pay more than US$2.80 per gallon for the ULSD. Find this call option and determine the cost (per gallon) of this call option. Copy and paste the report you used here.

3. Foley bought a tractor from Piva (a New Holland dealer in BC) in Nov 1998. It was financed by New Holland (Canada) Credit Company, with $5,775 down payment, and half yearly instalment payments of $4,876. The contract provided 2 years of warranty but had the following exclusion clause:

To the extent allowed by law, any implied warranty of merchantability or fitness applicable to this product is limited to the stated duration of this written warranty. Neither company nor the selling dealer shall be liable for loss of the use of the product, loss of time, inconvenience, commercial loss or consequential damages. The remedy of repair or replacement of a defective part during the warranty period herein specified shall be the purchaser’s exclusive remedy.

a. Can Foley get any money back? What legal doctrine can he use? Briefly explain.
b. What legal argument can Piva use? Briefly explain.
c. If you were the judge, what would your judgement be? Briefly explain.