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

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?

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?

If $1 million is invested at 6% per year,in approximately how many years will the investment double?

Which of the following statements is correct?

Why should interest rates be generally positive?

Why are arbitrage opportunities short-lived?

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

You have made an investment which will pay you $10,485 in one year's time.If the discount factor is 0.9728,what is the present value of your investment?

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.

A tenant wants to lease a building for $48,000 per year.She signs a five-year rental agreement that states that she will pay $24,000 every six months for the next five years.Which of the following is the timeline for her rental payments,assuming she makes the first payment immediately?

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

If the exchange rates,after fees,in Tokyo are ¥1000 = €6 = $9 and the exchange rates in Paris are €1 = $1.5 = ¥171,which of the following would you expect to occur?

If an analyst mistakenly adds cash flows occurring at different points in time,what is the implied assumption in the process?

What is the future value (FV)of $72,000 in 25 years,assuming the interest rate is 5.5% per year?

Consider the following timeline: If the current market rate of interest is 8%,then the value as of year 1 is closest to:

Sellers can make typographical errors when listing items on the online auction site eBay.These items often attract very few bidders.For example,someone listing a Nokia phone as a Nokya phone would have very few potential buyers sent to the incorrectly listed item by eBay's search engines.Some buyers look for items that are mislisted,buy them for a low price,then immediately list them for resale under the correct listing.Why does an arbitrage opportunity exist in this case?

Another oil refiner is offering to trade you 10,150 Bbls of Alaska North Slope (ANS)crude oil for 10,000 Bbls of West Texas Intermediate (WTI)crude oil.Assuming you currently have 10,000 Bbls of WTI crude,what should you do?

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?

Suppose that Bondi Inc.is a holding company that owns both Pizza Hut and KFC franchised restaurants.If the value of Bondi is $130 million,and the Pizza Hut franchises are worth $70 million,then what is the value of the KFC franchises?

You decide to deposit your money in a bank account paying 6% interest.If the value of your savings grows to $3,180 in one year's time,how much money did you deposit?