Question 1

Use the information for the question(s)below.
  As an oil refiner, you are able to produce $76.16 worth of unleaded petrol from one barrel of Tapis Outback Crude (TOC)oil. Because of its lower sulphur content, you can produce $77.25 worth of unleaded petrol from one barrel of Western Australian Intermediate (WAI)crude.
-Another oil refiner is offering to trade you 10 150 tonnes of TOC crude oil for 10 000 tonnes of WAI crude oil. Assuming you just purchased 10 000 tonnes of WAI crude at the current market price, the total benefit (cost)to you if you take the trade is closest to:
A)$774 319
B)$772 500
C)$773 024
D)$773 908

Accepted Answer

10 000 tonnes of WAI crude oil can produce:
$77.25 × 10 000 = $772 500 worth of unleaded petrol
10 150 tonnes of TOC crude oil can produce:
$76.16 × 10 150 = $773 224 worth of unleaded petrol

Therefore, if you take the trade, you will have an additional benefit of $773 224 - $772 500 = $724.

Thus, the closest answer is C) $773,024.

Question 2

Use the information for the question(s)below.
  As an oil refiner, you are able to produce $76.16 worth of unleaded petrol from one barrel of Tapis Outback Crude (TOC)oil. Because of its lower sulphur content, you can produce $77.25 worth of unleaded petrol from one barrel of Western Australian Intermediate (WAI)crude.
-Another oil refiner is offering to trade you 10 150 tonnes of Tapis Outback Crude (TOC)oil for 10 000 tonnes of Western Australian Intermediate (WAI)crude oil. Assuming you currently have 10 000 tonnes of WAI crude, the added benefit (cost)to you if you take the trade is closest to:
A)($524)
B)$524
C)($1 819)
D)$1 819

Accepted Answer

The added benefit is calculated based on the difference in value between the two types of crude oil. Assuming the trade is beneficial, it implies that the value of 10,150 tonnes of TOC oil exceeds the value of 10,000 tonnes of WAI crude by $524, indicating a positive benefit to the trader.

Question 3

In a trade with the government of an oil-producing nation, a manufacturer will deliver 14 Caterpillar D9 tractors, with a value of $350 000 per tractor, and receive 45 000 barrels of oil, valued at $115 per barrel. What is the net benefit of this trade to the manufacturer?
A)$275 000
B)$4 900 000
C)$1 750 000
D)$158 000

Accepted Answer

A

Question 4

Use the information for the question(s)below.
  As an oil refiner, you are able to produce $76.16 worth of unleaded petrol from one barrel of Tapis Outback Crude (TOC)oil. Because of its lower sulphur content, you can produce $77.25 worth of unleaded petrol from one barrel of Western Australian Intermediate (WAI)crude.
-Assuming you currently have 10 000 tonnes of WAI crude, the total benefits to you if you were to sell the 10 000 tonnes of WAI crude and use the proceeds to purchase and refine TOC crude is closest to:
A)$773 908
B)$772 500
C)$773 024
D)$774 319

Accepted Answer

The answer of Use the information for the question(s)below.
 ...

Question 5

In general, if an action increases a firm's value by providing benefits with a value greater than any costs involved, then that action is good for the firm's investors.

Accepted Answer

This statement is true. Actions that increase a firm's value by providing benefits that exceed the costs involved are good for the firm's investors as they lead to higher returns on investment.

Question 6

To enable costs and benefits to be compared, they are typically converted into a common currency and common point of time, such as dollars today.

Accepted Answer

This is true. To make costs and benefits comparable, they are often converted into a common currency (such as dollars) and a common point of time (such as today). This allows for easier evaluation and comparison of the costs and benefits of different options.

Question 7

Refer to the table above. An international seafood supplier is offered 9.45 million yen today for 1 000 kilograms of abalone frozen in the shell. The abalone can be sourced from various countries at the prices shown above. The current market exchange rates between Australia and the other relevant currencies are also shown. In addition, $1 AUD = 105 yen. What is the value of the best deal the international seafood supplier can make, in Australian dollars?
A)$8 000
B)$10 000
C)$7 000
D)$5 000

Accepted Answer

To find the best deal, convert 9.45 million yen to AUD using the exchange rate: 9,450,000 yen / 105 yen per AUD = $90,000 AUD. The supplier should choose the option that costs less than $90,000 AUD. If the table shows a price of $10,000 AUD for 1,000 kg of abalone, this would be the best deal.

Question 8

Use the information for the question(s)below.
  As an oil refiner, you are able to produce $76.16 worth of unleaded petrol from one barrel of Tapis Outback Crude (TOC)oil. Because of its lower sulphur content, you can produce $77.25 worth of unleaded petrol from one barrel of Western Australian Intermediate (WAI)crude.
-Assuming you just purchased 10 000 tonnes of WAI crude at the current market price, the total benefit (cost)to you if you were to refine this crude oil and sell the unleaded petrol is closest to:
A)$774 319
B)$772 500
C)$773 024
D)$773 908

Accepted Answer

The answer of Use the information for the question(s)below.
 ...

Question 9

A metal fabrication company is pricing raw supplies of aluminium. The following are the costs to the company to receive one tonne of aluminium from various sources. Which source offers the best price for aluminium per tonne?
A)3 206 US dollars per tonne, with $1 AUD = $1.05 USD
B)3 012 Australian dollars per tonne
C)4 998 Brazilian reals per tonne, with $1 AUD = 1.282 BRL
D)121 756 Indian rupees per tonne, with $1 AUD = 47.619 INR

Accepted Answer

The answer of A metal fabrication company is pricing raw...

Question 10

Steve is offered an investment where for every $1.00 invested today, he will receive $1.10 in five years' time. Steve concludes that in five years' time he will have $1.10 for every $1.00 invested and that this investment will increase his personal value. What is Steve's major error in reasoning when making this decision?
A)There may be other investments that he can make that will offer even bigger benefits.
B)The investment may have hidden costs that will reduce the amount of benefit he receives.
C)The value of the cash he has today is greater than the value of the cash he may have in the future.
D)Costs and benefits must be in the same terms to be compared.

Accepted Answer

The answer of Steve is offered an investment where for...

Question 11

Use the information for the question(s)below.
  As an oil refiner, you are able to produce $76.16 worth of unleaded petrol from one barrel of Tapis Outback Crude (TOC)oil. Because of its lower sulphur content, you can produce $77.25 worth of unleaded petrol from one barrel of Western Australian Intermediate (WAI)crude.
-Assuming you currently have 10 000 tonnes of WAI crude, the added benefit (cost)to you if you were to sell the 10 000 tonnes of WAI crude and use the proceeds to purchase and refine TOC crude are closest to:
A)($524)
B)$524
C)($1 819)
D)$1 819

Accepted Answer

The answer of Use the information for the question(s)below.
 ...

Question 12

Which of the following statements regarding the valuing of costs and benefits is NOT correct?
A)The first step in evaluating a project is to identify its costs and benefits.
B)Competitive market prices allow us to calculate the value of a decision without worrying about the tastes or opinions of the decision maker.
C)Because competitive markets exist for most commodities and financial assets, we can use them to determine cash values and evaluate decisions in most situations.
D)In the absence of competitive markets, we can use one-sided prices to determine exact cash values.

Accepted Answer

In the absence of competitive markets, it is not always possible to use one-sided prices to determine exact cash values. The absence of competitive markets may result in uncertainty and subjective pricing. Therefore, option D is not correct.

Question 13

A wholesale food retailer is offered $14 per carton for 5 000 cartons of peaches. The wholesaler can buy peaches from their growers at $12.50 per carton. Shipping costs $1.50 per carton, for the first 1 000 cartons, and $1.00 per carton for every carton over that. Will taking this opportunity increase the value of the wholesale food retailer?
A)No. The costs are $1 200 more than the benefits.
B)Yes. The costs are $1 000 less than the benefits.
C)Yes. The costs are $2 000 less than the benefits.
D)No. The costs and the benefits are the same.

Accepted Answer

To determine if taking the opportunity will increase the value of the wholesale food retailer, we need to compare the total costs of buying and shipping the peaches with the revenue generated from selling them at the offered price.

Total cost of buying and shipping 5,000 cartons of peaches: 
= (12.50 + 1.50) * 1,000 + (12.50 + 1.00) * 4,000 
= 14,000 + 50,000 
= $64,000

Total revenue generated from selling 5,000 cartons of peaches: 
= 14 * 5,000 
= $70,000

Profit = Revenue - Cost 
= $70,000 - $64,000 
= $6,000

Therefore, taking the opportunity will increase the value of the wholesale food retailer by $6,000. Since the costs are $2,000 less than the benefits, the correct choice is C.

Question 14

The overarching principal that a financial manager should follow when making decisions is that decisions should increase the value of the firm to its investors.

Accepted Answer

This principle is known as the "value maximization principle," and it is widely accepted in financial management. All decisions should be made with the goal of increasing the value of the firm to its investors, which ultimately benefits all stakeholders involved in the company.

Question 15

A firm that provides tax services to the public intends to offer a premium tax-return service at a higher price than their current services. The managers of the company ask experts in marketing to determine how much an effective ad campaign for such a service would cost, and by how much sales would be increased. They consult experts in economics to calculate the increases in revenue from the success of the campaign, experts in operations to determine the cost of offering the service, and experts in strategy to anticipate possible countermoves by competitors. This example illustrates which of the following points about the role of financial managers?
A)Ultimately the decision whether to take a certain course of action rests with the financial managers of a company.
B)All of the costs and benefits associated with a decision can never be fully identified.
C)Real-world decisions are complex and require information from many sources if the decisions are to be valid.
D)Determining the costs associated with making a decision is easier than determining the potential benefits of the decision.

Accepted Answer

The example illustrates that real-world decisions are complex and require information from many sources if they are to be valid, as the managers of the tax service firm are consulting experts in marketing, economics, operations, and strategy to make an informed decision about offering a premium service. The example does not indicate that financial managers have ultimate decision-making authority or that all costs and benefits cannot be fully identified. Additionally, the example suggests that determining the potential benefits of a decision, such as increased sales revenue, can be as important as determining the costs associated with making the decision.

Question 16

Costs and benefits must be put in common terms if they are to be compared.

Accepted Answer

Costs and benefits cannot be compared if they are in different units or formats. They need to be translated into common terms, such as dollars or percentages, to be effectively compared.

Question 17

An Australian manufacturer of sunscreen is contemplating using funds to purchase courtside advertising at major tennis matches such as the French Open and the US Open. Advertising at such well-viewed international events will then raise the domestic sales of the manufacturer's products. Which of the following factors will probably raise the LEAST difficulties when comparing the costs and benefits associated with this particular decision?
A)The costs and benefits will not be expressed in common terms.
B)The costs will be incurred well before any benefits are likely to be seen.
C)The costs and benefits will be difficult to measure.
D)The costs and benefits will be in different currencies.

Accepted Answer

The answer of An Australian manufacturer of sunscreen is contemplating...

Question 18

Another oil refiner is offering to trade you 10 150 tonnes of TOC crude oil for 10 000 tonnes of WAI crude oil. Assuming you currently have 10 000 tonnes of WAI crude, what should you do?
A)Do nothing, refine the 10 000 tonnes of WAI crude.
B)Sell 10 000 tonnes WAI crude on the market and use the proceeds to purchase and refine TOC crude.
C)Trade the 10 000 tonnes WAI crude with the other refiner and refine the 10 150 tonnes of TOC crude.
D)Trade the 10 000 tonnes WAI crude with the other refiner and then sell the 10 150 tonnes of TOC crude.

Accepted Answer

The answer of Another oil refiner is offering to trade...

Question 19

Why is the personal decision a financial manager makes as to whether to buy or to rent an apartment as a personal residence most like the professional decision that a manager makes as to whether his/her firm should try to acquire a stake in a fast-growing new internet-based company?
A)Both decisions involve the purchase of assets.
B)Both decisions should be made based upon the trade-off between benefits and costs across time.
C)Both decisions are vital to the financial health of the decision maker.
D)Both decisions will be made based on what provides the greatest long-term benefit.

Accepted Answer

Both decisions involve evaluating the benefits and costs over time. In the case of renting versus buying, the financial manager must consider the monthly costs of renting versus the long-term benefits of owning a property. Likewise, in the case of acquiring a stake in a fast-growing internet-based company, the manager must evaluate the potential benefits and costs of investing over time. Both decisions require a careful analysis of the costs and benefits involved in order to make an informed decision.

Question 20

Heavy Duty Inc., a manufacturer of power tools, decides to offer a rebate of $100 on its 16-inch mid-range chain saw, which currently has a retail price of $470. Heavy Duty's marketers estimate that, as a result of the rebate, sales of this model will increase from 50 000 to 80 000 units next year. The profit margin for Heavy Duty before the rebate is $150. Based on the given information, is the decision to give the rebate a wise one?
A)Yes, since the benefits are $1.5 million more than the costs.
B)No, since costs are $5.0 million more than benefits.
C)Yes, since the benefits are $0.2 million more than the costs.
D)No, since costs are $3.5 million more than benefits.

Accepted Answer

The answer of Heavy Duty Inc., a manufacturer of power...

Quiz 3: Time Value of Money: an Introduction

In a trade with the government of an oil-producing nation, a manufacturer will deliver 14 Caterpillar D9 tractors, with a value of $350 000 per tractor, and receive 45 000 barrels of oil, valued at $115 per barrel. What is the net benefit of this trade to the manufacturer?

In general, if an action increases a firm's value by providing benefits with a value greater than any costs involved, then that action is good for the firm's investors.

To enable costs and benefits to be compared, they are typically converted into a common currency and common point of time, such as dollars today.

A metal fabrication company is pricing raw supplies of aluminium. The following are the costs to the company to receive one tonne of aluminium from various sources. Which source offers the best price for aluminium per tonne?

Which of the following statements regarding the valuing of costs and benefits is NOT correct?

The overarching principal that a financial manager should follow when making decisions is that decisions should increase the value of the firm to its investors.

Costs and benefits must be put in common terms if they are to be compared.

Another oil refiner is offering to trade you 10 150 tonnes of TOC crude oil for 10 000 tonnes of WAI crude oil. Assuming you currently have 10 000 tonnes of WAI crude, what should you do?

Why is the personal decision a financial manager makes as to whether to buy or to rent an apartment as a personal residence most like the professional decision that a manager makes as to whether his/her firm should try to acquire a stake in a fast-growing new internet-based company?