Exam 3: Time Value of Money: an Introduction

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?

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

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

Explain why a dollar today is worth more than a dollar tomorrow.

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?

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?

Dollar amounts received at different points in time cannot be compared in absolute terms.

What is the future value (FV) of $50,000 in thirty years, assuming the interest rate is 12% per year?

What is the present value (PV) of $90,000 received six years from now, assuming the interest rate is 5% per year?

Use the information for the question(s) below. As an oil refiner, you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude. Assuming you just purchased 9950 bbl of WTI crude at the current market price, the total revenue (cost) to you if you were to refine this crude oil and sell the unleaded gasoline is closest to ________.

Walgreens Company (NYSE: WAG) is currently trading at $48.75 on the NYSE. Walgreens Company is also listed on NASDAQ and assume it is currently trading on NASDAQ at $48.50. Does an arbitrage opportunity exist and, if so, how would you exploit it and how much would you make on a block trade of 100 shares?

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