A ﬁrm in the extraction industry whose major assets are cash, equipment and a closed facility may appear to have extraordinary value.This value can be primarily attributed to:
A)the potential sale of the company.
B)the low exercise price held by the shareholders.
C)the option to open the facility when prices rise dramatically.
D)the option to open the facility when prices fall dramatically.
E)None of the above.

Question

Quizplus · Accepted Answer

The closed facility has the potential to be opened when prices rise dramatically, increasing the value of the firm's assets. This option provides a valuable opportunity for future profits and growth, and is the primary source of the firm's extraordinary value. Options A and B may contribute to the firm's value, but are not the primary drivers. Option D is incorrect, as opening the facility when prices fall would likely decrease the value of the firm's assets.

A ﬁRm in the Extraction Industry Whose Major Assets Are