A firm in the mining industry whose major assets are cash,equipment,and a closed facility may sell at a premium to the market value of its assets.This premium is most plausibly attributed to:
A)nearsighted investors.
B)the low exercise price held by its shareholders.
C)the option to open the facility when prices rise dramatically.
D)all of the options.

Question

Quizplus · Accepted Answer

The premium on the market value of the assets can be attributed to the option of opening the closed facility when prices rise dramatically. This suggests that investors believe that there is potential for the firm to generate future profits and increase the value of its assets. This option value is not reflected in the current market value of the assets, hence the premium. Option A (nearsighted investors) and option B (low exercise price held by its shareholders) do not seem to offer a plausible explanation for the premium.

A Firm in the Mining Industry Whose Major Assets Are