Healthy Fish,Inc.is considering the purchase of a batch of experimental fish fry for $10,000.The fry will mature and be ready for the market in a year.A government agency guarantees the hardiness of the new breed-it will make a one-for-one same-size replacement if any fish should die of infections during the first year when reared according to clearly specified instructions.Healthy Fish expects to spend another $42,000 to raise the fish.Suppose that Healthy Fish can enter into a futures contract to sell the entire batch of fish for $60,000,the contract will cost $3,000.What is the opportunity cost of capital for this investment? Should Healthy Fish make the investment? If Healthy Fish cannot set up a futures contract,what is its opportunity cost of capital? Should it invest in this case? Assume that the current interest rate on AAA corporate bonds is 6.25%,and that the historical rate of return on the stock exchange is 10%.

Question

Quizplus · Accepted Answer

The Answer of Healthy Fish,Inc.is considering the purchase of a batch of experimental fish fry for $10,000.The fry will mature and be ready for the market in a year.A government agency guarantees the hardiness of the new breed-it will make a one-for-one same-size replacement if any fish should die of infections during the first year when reared according to clearly specified instructions.Healthy Fish expects to spend another $42,000 to raise the fish.Suppose that Healthy Fish can enter into a futures contract to sell the entire batch of fish for $60,000,the contract will cost $3,000.What is the opportunity cost of capital for this investment? Should Healthy Fish make the investment? If Healthy Fish cannot set up a futures contract,what is its opportunity cost of capital? Should it invest in this case? Assume that the current interest rate on AAA corporate bonds is 6.25%,and that the historical rate of return on the stock exchange is 10%.