Assume a firm in the extraction industry has major assets consisting solely of cash,equipment,and a closed facility but yet the firm appears to have extraordinary value.This value is least apt to be attributable to the:
A)low exercise price held by the shareholders.
B)option to open the facility when prices rise dramatically.
C)option to keep the facility closed for an extended period of time.
D)current operating cash flow.
E)potential sale of the firm.

Question

Quizplus · Accepted Answer

The extraordinary value of the firm is least likely to be attributable to the current operating cash flow, as it is a standard source of value for any business and does not explain the extraordinary value of the firm in this scenario. The low exercise price held by shareholders, option to open the facility when prices rise dramatically, option to keep the facility closed for an extended period of time, and potential sale of the firm may all contribute to the extraordinary value of the firm.

Assume a Firm in the Extraction Industry Has Major Assets