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Unformatted text preview: Management Science & Engineering 369 Spring, 2008 Homework #4 Due: Beginning of class, May 6 1. Contract valuation Questions: a) A supplier of a commodity product offers flexible quantity contracts to its customers. Compare the suppliers revenue exposure if the contract pricing is:- Index (market) based - Fixed price Which is more risky? Is there an unambiguous answer to this question? b) The same supplier also sells custom products. For buyers of these products, the supplier is the only available source. Compare the suppliers revenue exposure under flex quantity contracts for such products if the contract pricing is:- Index (market) based- Fixed price 2. Sell-through and buy-out options Buyers who agree to commit to fixed quantity contracts for commodity products often request either or both sell-through rights, which allow them to sell to others quantity which they must take under the contract in excess of the quantity they require, and buy- out options, which allow them to buy themselves out of some or all of their committed...
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This note was uploaded on 06/16/2010 for the course MS&E 369 taught by Professor Blakejohnson during the Spring '08 term at Stanford.
- Spring '08