Question 1

A company intends to install new management software for its warehouse. The software will cost $47,000 to buy and will cost an additional $148,000 to install and implement. It is anticipated that it will save the company $44,000 through reductions in staff and $69,000 in general inventory costs in the first year after installation. What is the total benefit to the company in the first year if they choose to install the software?

Accepted Answer

C) $44,000 + $69,000 = $113,000

Question 2

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 5,925 tons of low-grade copper ore for 4,000 tons of high-grade copper ore. Assuming you currently have 4,000 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 3

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 provide a common currency (cash value) that financial managers can use to compare the costs and benefits of different commodities and services. This is useful when making decisions about investments, financing, or pricing strategies. They can also be used to estimate the resale value of assets. However, market prices are not fixed or unchanging and may not always reflect the true or fair value of goods and services. Therefore, financial managers need to consider other factors such as supply and demand, competition, and market trends when using market prices in cost-benefit analysis.

Question 4

You own 1000 shares of Newstar Financial stock, currently trading for $57 per share. You are offered a deal where you can exchange these stocks for 900 shares of Amback Financial Group stock, currently trading at $63 per share. What is the value of this trade, if you choose to make it?

Accepted Answer

C) (-57 × 1000) + (900 × 63) = -$300

Question 5

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

Accepted Answer

The answer of Explain the role played by some of...

Question 6

A coin collector treasures his 1969-S doubled die obverse Lincoln cent 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 coin's market value is $35,000, as this is the price it would fetch if sold on the open market.

Question 7

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

Accepted Answer

If an arbitrage opportunity exists, it means that the investor can buy and sell the same asset in different markets at different prices, making a guaranteed profit without any risk. Therefore, the investor can act quickly to take advantage of this opportunity and make a risk-free profit.

Question 8

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 is determined by the interaction of supply and demand. Buyers determine the demand for the good and sellers determine the supply, but it is the price that ultimately balances the two and determines the value of the good. Cost is a factor that sellers consider when deciding how much to produce, but it does not directly determine the value in a competitive market.

Question 9

You have a used CD store. At an estate sale, you can purchase 230 compact discs for $356.5. You believe you could sell the CDs for an average of $3.05 each. What is the net benefit of buying the CDs at the estate sale and selling them in your store?

Accepted Answer

D) ($3.05 × 230) - $356.5 = $701.5 - $356.5 = $345

Question 10

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 that of wheat is $15.80 per bushel, should this opportunity be taken, and why?

Accepted Answer

C) (0.8 × 10,000) - (0.2 × 5,000) = 8,000 - 1,000 = $7,000

Question 11

A metal fabrication company is pricing raw supplies of aluminum. The following are the costs to the company to receive one ton of aluminum from various sources. Which source offers the best price for aluminum per ton?

Accepted Answer

A) $3010
B) 3185 × 0.953 = $3035
C) 5888 × 0.507 = $2985
D) 105,517 × 0.029 = $3060

Question 12

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

The Law of One Price is a basic concept in economics and finance, and it states that if equivalent goods or securities are traded simultaneously in different competitive markets, their prices will be the same in each market. This assumes that there are no transport costs, trade restrictions, or other barriers to market integration. The Law of One Price is an important principle for pricing, arbitrage, and risk management in global markets.

Question 13

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 7,250 tons of low-grade copper ore for 5,000 tons of high-grade copper ore. Assuming Coloma currently has 5,000 tons of high-grade ore, what should it do?

Accepted Answer

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

Question 14

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

Accepted Answer

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

Question 15

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

Accepted Answer

The answer of What is one of the main obstacles...

Question 16

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 $800 per ton, which had been originally purchased at $750 per ton. Given that the company has no use for the styrene monomer, and that it would cost the company $5200 to store it, what is the total value of the 20 tons of styrene monomer to the company?

Accepted Answer

D) 11ea84dc_f580_7762_9a63_39651463a21f_TB1316_00_TB1316_00

Question 17

Which of the following best describes the valuation principle?

Accepted Answer

The valuation principle states that the value of a commodity or an asset to a firm or its investors is determined by its competitive market price. When 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 is because the market price reflects the aggregate knowledge of all market participants about the perceived value of the asset or commodity, considering all factors such as risk, time, and currency. Options A, C, and D are not accurate definitions of the valuation principle.

Question 18

Refer to the table above. An international seafood supplier is offered 9.52 million yen today for 1000 pounds of abalone frozen in the shell. One thousand pounds of abalone can be sourced from various countries at the prices shown above. The current market exchange rates between the United States and the other relevant currencies are also shown. In addition,  What is the value, in U.S. dollars, of the best deal the international seafood supplier can make?

Accepted Answer

D) 9.52 million / 102 yen = $93,333; cost = 104,000/1.3 NZD = $80,000;
$93,333 - $80,000 = $13,333.

Question 19

Heavy Duty Company, a manufacturer of power tools, decides to offer a rebate of $130 on its 16-inch mid-range chain saw, which currently has a retail price $490. Heavy Duty's marketers estimate that, as a result of the rebate, sales of this model will increase from 60,000 to 80,000 units next year. The profit margin for Heavy Duty before the rebate is $180. Based on the given information, is the decision to give the rebate a wise one?

Accepted Answer

B) 11ea84dc_f57f_b40d_9a63_f12359f4bb6d_TB1316_00_TB1316_00 11ea84dc_f57f_db1e_9a63_27b0e7d65dac_TB1316_00_TB1316_00

Question 20

A firm has contracted to supply 500,000 gallons of propane fuel for $1.46 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

B) The firm should benefit as long as it gets a price higher than the contract price; 11ea84dc_f580_7763_9a63_9148e4bc665c_TB1316_00_TB1316_00

Quiz 3: Time Value of Money: an Introduction