Acompany wishes to hedge its exposure to a new fuel whose price changes have a 0.6 correlation with gasoline futures price changes. the company will lose $1 million for each 1 cent increase in the price per gallon of the new fuel over the next three months. the new fuel's price change has a standard deviation that is 50% greater than price changes in gasoline futures prices. if gasoline futures are used to hedge the exposure what should the hedge ratio be? what is the company's exposure measured in gallons of the new fuel? what position measured in gallons should the company take in gasoline futures? how many gasoline futures contracts should be traded? each contract is on 42,000 gallons.

Examine the following book-value balance sheet for university products inc. the preferred stock currently sells for $30 per share and pays a dividend of $3 a share. the common stock sells for $16 per share and has a beta of 0.9. there are 2 million common shares outstanding. the market risk premium is 9%, the risk-free rate is 5%, and the firm’s tax rate is 40%. book-value balance sheet (figures in $ millions) assets liabilities and net worth cash and short-term securities $ 2.0 bonds, coupon = 6%, paid annually (maturity = 10 years, current yield to maturity = 8%) $ 5.0 accounts receivable 3.0 preferred stock (par value $15 per share) 3.0 inventories 7.0 common stock (par value $0.20) 0.4 plant and equipment 21.0 additional paid-in stockholders’ equity 13.6 retained earnings 11.0 total $ 33.0 total $ 33.0 a. what is the market debt-to-value ratio of the firm? (do not round intermediate calculations. enter your answer as a percent rounded to 2 decimal places.) b. what is university’s wacc? (do not round intermediate calculations. enter your answer as a percent rounded to 2 decimal places.)