Exam 3: Time Value of Money: An Introduction

A vintner is deciding when to release a vintage of sauvignon blanc.If it is bottled and released now,the wine will be worth $2.2 million.If it is barrel aged for a further year,it will be worth 20% more,though there will be additional costs of $500,000.If the interest rate is 7%,what is the difference in the benefit the vintner will realize if he releases the wine after barrel aging it for one year or if he releases the wine now?

Which of the following statements regarding the valuing of costs and benefits is NOT correct?

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

Why is the personal decision a financial manager makes as to whether to buy or to rent an apartment as a personal residence most like the professional decision that manager makes as to whether her firm should try to acquire a stake in a fast growing new Internet-based company?

If the one-year discount factor is equal to 0.90909,the interest must be equal to:

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?

If the risk-free rate of interest (r_f)is 6%,then you should be indifferent between receiving $250 in one year or

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

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. -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?

What is a competitive market?

A manufacturer of breakfast cereals has the opportunity to purchase barley at $3.00 a bushel for 10,000 bushels,if it also buys 5000 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?

How can we make a financial decision with cash flows occurring at different points in time?

If the risk-free rate of interest (r_f)is 6%,then you should be indifferent between receiving $250 today or

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

Stella deposits $5,000 in a savings account at a bank that offers interest of 5.5% on such accounts.What is the value of the money in her savings account in one year's time?

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 currently have 10,000 Bbls of WTI crude,the total benefits to you if you were to sell the 10,000 Bbls of WTI crude and use the proceeds to purchase and refine ANS crude is closest to:

Why is it usually necessary to use the time value of money when performing a cost benefit analysis?

Why should you approach every problem by drawing a timeline?

To enable costs and benefits to be compared they are typically converted into cash value at the time the benefit is received.

Which of the following statements is INCORRECT?