Question 1

Like other metals,uranium 308 is traded in competitive markets like the New York Metals Exchange.Which of the following would most likely value a given weight of uranium 308 the most?

Accepted Answer

The answer of Like other metals,uranium 308 is traded in...

Question 2

The Law of One Price states that if equivalent goods or securities are traded simultaneously in different competitive markets,they will trade for the same price in each market.

Accepted Answer

This is the exact definition of the Law of One Price.

Question 3

How can we perform cost benefit analysis in case they are occurring in different currencies?

Accepted Answer

The answer of How can we perform cost benefit analysis...

Question 4

Explain the role played by some of the other management disciplines in financial decision making.

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Question 5

A manufacturer of breakfast cereals has the opportunity to purchase barley at $3.00 a bushel for 10,000 bushels,if it also buys 5,000 bushels of wheat at $16.00 per bushel.However,the manufacturer does not use any barley in its products,and currently needs 20,000 bushels of wheat.If the current market price of barley is $3.80 per bushel,and wheat is $15.80 per bushel,should this opportunity be taken,and why?

Accepted Answer

The value of the opportunity is positive because the savings on barley ($0.80 per bushel for 10,000 bushels = $8,000) and the savings on wheat ($0.20 per bushel for 5,000 bushels = $1,000) together exceed the cost of buying unnecessary barley ($3.00 per bushel for 10,000 bushels = $30,000), resulting in a net savings.

Question 6

A firm has contracted to supply 500,000 gallons of propane fuel for $1.49 million to the local municipality.The municipality wants to break the contract.What does the minimum current market price of propane need to be in order for the firm to benefit from breaking the contract?

Accepted Answer

In order for the firm to benefit from breaking the contract, the price per gallon of propane on the market has to be higher than the price agreed upon in the contract ($1.49 million divided by 500,000 gallons = $2.98 per gallon). Therefore, the minimum current market price of propane needs to be greater than $2.98 per gallon, which is choice B.

Question 7

Which of the following best explains why you cannot use the price of rolled oats at a local supermarket as the competitive market value of rolled oats?

Accepted Answer

The price posted by a local supermarket is the price at which they are willing to sell rolled oats, but it does not reflect the competitive market value of rolled oats because the store will not buy oats from you for the same price. In a competitive market, the price should be determined by the forces of supply and demand, and buyers and sellers should be able to trade at that price.

Question 8

If an arbitrage opportunity exists,an investor can act quickly in the hope of making a risk-free profit.

Accepted Answer

Arbitrage opportunities arise when an asset is priced differently in different markets, allowing an investor to buy low in one market and sell high in another to make a risk-free profit. This requires quick action to take advantage of the market inefficiency before it is corrected.

Question 9

Whenever a good trades in a competitive market,the price the good trades for determines the value of the good.

Accepted Answer

In a competitive market, the price of a good is determined by the market forces of supply and demand. Therefore, the price at which a good trades in the market reflects its value.

Question 10

A coin collector treasures his 1969-S Lincoln cent with a doubled die obverse because he found it in his pocket change,rather than purchasing it.He can sell it on the open market for $35,000,but would only sell it for at least twice that price,due to its sentimental value to him.It is anticipated that the coin will increase in market value in the foreseeable future.What is the value of the coin?

Accepted Answer

The answer of A coin collector treasures his 1969-S Lincoln...

Question 11

Use the information for the question(s)below.
  Coloma Cooper Incorporated is able to produce $640 worth of copper from one ton of low-grade copper ore.Because of its higher copper content,Coloma can produce $940 worth of copper from one ton of high-grade copper ore.
-A mining company is offering to trade you 7250 tons of low-grade copper ore for 5000 tons of high-grade copper ore.Assuming you currently have 5000 tons of high-grade ore,what should you do?

Accepted Answer

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

Question 12

Use the information for the question(s)below.
  Coloma Cooper Incorporated is able to produce $640 worth of copper from one ton of low-grade copper ore.Because of its higher copper content,Coloma can produce $940 worth of copper from one ton of high-grade copper ore.
-A company that manufactures copper piping is offering to trade you 5925 tons of low-grade copper ore for 4000 tons of high-grade copper ore.Assuming you currently have 4000 tons of high-grade ore,what are the total benefits and added benefits of taking the trade?

Accepted Answer

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

Question 13

What is a competitive market?

Accepted Answer

A competitive market is a market where many buyers and sellers interact, and no single buyer or seller has control over the price. In such markets, the forces of supply and demand determine the price at which goods and services are exchanged. In a perfectly competitive market, there are no barriers to entry or exit, and all buyers and sellers have access to the same information. One characteristic of a competitive market is that goods can be bought and sold at the same price, which is the definition given in option B.

Question 14

Which of the following is the best statement of the Valuation Principle?

Accepted Answer

The Valuation Principle states that the value of a commodity or an asset to the firm or its investors is determined by its competitive market price. If the value of the benefits exceeds the value of the costs in terms of market prices, the decision will increase the market value of the firm. This principle is important in financial decision making and helps in determining the feasibility of investment options.

Question 15

Which of the following best explains why market prices are useful to a financial manager when performing a cost-benefit analysis?

Accepted Answer

Market prices can be used to convert different services and commodities into equivalent cash values which can be compared, allowing financial managers to perform cost-benefit analysis. This helps in decision-making about the allocation of resources based on their relative costs and benefits.

Question 16

Which of the following is an example of arbitrage?

Accepted Answer

Arbitrage involves taking advantage of a price difference between two markets in order to make a profit. Option A involves making a speculative investment based on future technology adoption, while option B involves a simple interest rate calculation. Option D involves purchasing an option, which is a form of derivative investment. Option E involves a speculative investment based on market trends. Option C, on the other hand, involves exploiting a price difference between two markets for the same asset, which is the essence of arbitrage.

Question 17

Whenever a good trades in a competitive market,the ________ determines the value of the good.

Accepted Answer

In a competitive market, the price of a good or service is determined by the interaction of supply and demand. The price adjusts until the quantity of the good demanded by buyers equals the quantity supplied by sellers, resulting in a market equilibrium. Therefore, price is the key factor that determines the value of the good in a competitive market.

Question 18

A company decides to close down its plastics division.It has on hand 20 tons of styrene monomer,a raw material that has a market price of $700 per ton,which had been originally purchased at $650 per ton.Given that the company has no use for the styrene monomer,and that it would cost the company $5000 to store it,what is the value of the 20 tons of styrene monomer to the company?

Accepted Answer

The value of the styrene monomer to the company is based on the difference between the market price and the cost of storage.

The market value of the 20 tons of styrene monomer is 20 x $700 = $14,000.

The cost to store it is $5000.

Therefore, the value of the styrene monomer to the company is $14,000 - $5000 = $9,000.

Therefore, the correct answer is D) $14,000.

Question 19

What is one of the main obstacles in cost benefit analysis?

Accepted Answer

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Question 20

An elderly relative offers to sell you her used 1958 Cadillac Eldorado for $50,000.You note that very similar cars are selling on the open market for $90,000.You don't care for classic cars and would rather buy a new Ford Explorer for $35,000.What is the net value of buying the Cadillac?

Accepted Answer

The net value of buying the Cadillac is the difference between the purchase price and resale price, which is $40,000. This means that if you buy the Cadillac for $50,000 and sell it for $90,000, you would make a profit of $40,000. Even though you prefer the Ford Explorer, it is not relevant to the net value calculation.

Quiz 3: The Valuation Principle: the Foundation of Financial Decision Making